What should I check before buying a wholesale distribution business?

A wholesaler buys from suppliers and sells to businesses, so it depends on both sides at once. Whether the products are building materials, food, parts or supplies, a buyer’s main questions are the same: will the supplier relationships carry over, will the customers stay, and is the stock and the receivables as sound as they look?

Start with the supplier line card

List the product lines the business carries and ask for the agreement behind each one. Some suppliers can end a distribution arrangement when ownership changes, or may give exclusive territory only to the current owner. Ask the seller whether the suppliers know about the sale and what they have said.

Look at customers and who holds them

Ask what share of sales comes from the largest few customers and who handles each account, whether the owner, a salesperson or an inside desk. If salespeople hold the relationships, ask about their terms. Customer concentration works against a buyer when a lost account would change the business.

Inventory, receivables and rebates

Ask for an inventory report by age and walk the shelves to find slow and dead stock. Review the receivables ageing and who owes what. Ask about supplier rebates and whether they are earned, owed or promised, and how the seller counted them. Your accountant can work through each of these with you.

Warehouse and delivery

See the warehouse, the delivery vehicles and the systems that track orders. Ask what happens during a busy week and what breaks first. For the seller’s side of the same business, read selling a wholesale distribution business.