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The food and beverage industry has always been one of the most attractive for the would-be entrepreneur. After all, each one of us must eat and drink to be able to survive and we have to pay much attention to the fundamentals! While this may be the case, there are many complex and interrelated issues to consider before you buy a business involving an existing restaurant and it’s important to bear in mind that less than one in 10 purchases will actually succeed. Correct valuation upfront and an adequate process of due diligence will help you to survive against these odds and prosper.

When you begin trying to buy restaurant business assets, you’ll quickly learn that one of the key skills you’ll require is the ability to decipher information and to communicate effectively. You will need numerous meetings with the seller and don’t be surprised if the early ones don’t reveal some fundamental facts and figures. It is natural for the seller to be a little protective and to want to gauge your enthusiasm and see whether you are really serious and qualified before divulging delicate data.

There are some basic facts and figures to absorb before you are able to project your own figures for the future. What style of food does the business favor and how many tables are there in the restaurant? You need to know how many meals are served per day, per week and by month and if the menu is somewhat specialized, are the supplier contracts strong enough and is the supply chain sufficient?

Labor is a major cost in any business and particularly here. How do the costs breakdown in this particular business and be careful if the strength of the organization is entirely based on certain personalities, key figures, or even the master chef. Tread carefully here as the seller may well want to keep news of the potential sale away from his employees, so you might not get some of the finer details right away.

Write up a check-list of questions to ask the owner; you should have hundreds and not be afraid to be very specific, nor to insist on detailed answers. Before you even go there, however, understand that this kind of business involves very long hours and is typically a seven days per week concern. You will be required to deal with many “fires,” be great at managing people and your time and may not expect to see a specific net profit for quite a while.

As a new owner, you will need to set up and develop new relationships with all your suppliers. Some suppliers see a change of ownership as an opportunity to significantly “amend” their contracts, and prices. Don’t be surprised if you have to deal with distraught people who may be concerned because their table is not ready for them, although they booked it but still arrived past their scheduled time. You must be able to motivate your employees and be able to handle all situations immediately, resulting in praise or termination accordingly.

If you are really sure that you want to get involved with the restaurant industry, have thought about the right questions and received full answers from the seller, have crunched the financials and studied the contracts, then you are now ready to look at the business value. Experts in this field should be engaged to help you understand what you are dealing with and you should use their findings to help you solidify your thoughts. Find out what the bottom line is, how much the owner makes in terms of salary, net profits and benefits and then adjust this figure downward based on any capital expenditure you feel you may have to make.

With any restaurant for sale, the three major costs involved – labor, rent and food, should be no more than two thirds of total expenditure and always remember that you will have to have a superb marketing plan so that you can tell everyone about your new creation.

Richard Parker is the President and founder of the Diomo Corporation – The Business Buyer Resource Center. His inspiring materials, seminars and consulting have assisted thousands of business buyers with achieving their life long dream to buy a business.

There certainly is no feeling of freedom to compare with the joy of being self-employed and truly independent. You have the opportunity to determine the amount of time that you put in when you run a business and can prepare for your future accordingly. Proponents agree, however, that it is a significant challenge and that there are, of course, no guarantees! Be aware that there are significant risks associated with buying a business and this concept is not for the faint of heart or for someone who is easily confused.

If you have never run a business of any kind before you may be wondering where to start. For many, the thought of buying an existing business is attractive as it can be said that a lot of the “dirty work” has already been done and there is a certain amount of bedrock already established. While this is certainly true, you need to ensure that you walk into any situation with your eyes wide open, do a considerable amount of research, consult qualified experts, ensure that you value the business appropriately and at all costs, conduct your due diligence thoroughly.

When you decide you will buy business interests, there are certain specific steps that you must take. Never be tempted to short cut or to let your heart rule your head. It is natural to develop an enthusiasm for what you are doing and the prospects ahead and if you see positive signs during your process of discovery, this can lead to you wanting to jump ahead enthusiastically. Be warned, this can lead to serious problems if you’re not careful!

Time is definitely worth money, but any time spent in preparation here will be well spent, even though it may be a lengthy process as any successful entrepreneur can attest to. Those individuals who have bought a business for sale before will testify that their upfront efforts pay significant dividends as they move forward. Invest some of your money and educational materials and expect to spend a lot of money researching your business in terms of time allocated; do not be tempted to rush through to completion.

If you’re new to the world of the self-employed and you’re looking to buy a business, understand that you will need to possess certain essential traits and you must maintain a positive but realistic approach throughout. Right at the top of your list should be common sense and a realization that if something appears to be “too good to be true” then it always is, without question. Humor will definitely be an ally as well, as this procedure can be very lengthy and will require you to maintain a positive attitude.

It’s essential to strive to be a good communicator, as you certainly will need to be, as the seller and other interested parties must be grilled for information, as you impart your needs and requirements to them. Being able to ask the right questions at the right time and correctly interpreting the answers is paramount.

Richard Parker is the author of the How to Buy a Good Business at a Great Price series. As President and founder of Diomo Corporation – The Business Buyer Resource Center, his materials, seminars and consulting have helped thousands of business buyers realize their dream to buy a business.

For the would-be entrepreneur, a food and beverage industry option can be very attractive. When we consider fundamentals, something that each one of us must purchase to survive, food and drink of course comes in at the top of the list. This may very well be true, but so many interrelated complex issues arise when you look to buy a business, that you should remember that only one in 10 companies such as this will actually survive. It is very important to value the business correctly upfront and if you go about your due diligence correctly you will have a good chance of surviving against these awful odds.

When you begin trying to buy restaurant business assets, you’ll quickly learn that one of the key skills you’ll require is the ability to decipher information and to communicate effectively. A number of meetings will be required with the seller and don’t be frustrated if the meetings don’t reveal some of the significant information. It is natural for the seller to be a little protective and to want to gauge your enthusiasm and see whether you are really serious and qualified before divulging delicate data.

Before you can start projecting a position in the future, you need to know some basic facts and figures. What style of food does the business favor and how many tables are there in the restaurant? You need to know how many meals are served per day, per week and by month and if the menu is somewhat specialized, are the supplier contracts strong enough and is the supply chain sufficient?

In any business, labor costs are significant. How do the costs breakdown in this particular business and be careful if the strength of the organization is entirely based on certain personalities, key figures, or even the master chef. You may not expect to get a lot of the finer details during the early process, as a seller often wants to keep any news of a potential sale away from the employees until the appropriate moment.

When you start to compose a check-list of questions for the owner – and you might find you have hundreds, don’t be afraid to be as specific as you need to be and insist on appropriate answers. Before you even go there, however, understand that this kind of business involves very long hours and is typically a seven days per week concern. You will definitely be required to be good at managing people, dealing with significant problems and you might have to be patient before you can expect to see any profit from your endeavours.

As a new owner, you will need to set up and develop new relationships with all your suppliers. Some suppliers see a change of ownership as an opportunity to significantly “amend” their contracts, and prices. You must be able to deal with distraught people, who may be upset because their table is not available, even though they booked it but arrived late. You must be able to motivate your employees and be able to handle all situations immediately, resulting in praise or termination accordingly.

If you are really sure that you want to get involved with the restaurant industry, have thought about the right questions and received full answers from the seller, have crunched the financials and studied the contracts, then you are now ready to look at the business value. Experts in this field should be engaged to help you understand what you are dealing with and you should use their findings to help you solidify your thoughts. Find out what the bottom line is, how much the owner makes in terms of salary, net profits and benefits and then adjust this figure downward based on any capital expenditure you feel you may have to make.

With any restaurant for sale, the three major costs involved – labor, rent and food, should be no more than two thirds of total expenditure and always remember that you will have to have a superb marketing plan so that you can tell everyone about your new creation.

Richard Parker is the President and founder of the prestigious Diomo Corporation – The Business Buyer Resource Center. His celebrated materials, seminars and consulting have encouraged thousands of aspiring business buyers from around the World to pursue their dream to buy a business.

Entrepreneurs often fret when it comes to the calculated value and whether to buy a business for sale. There are many intangibles and these can be confusing when it comes to selecting the real value. It is possible to “number crunch” all the financials, pay some attention to benchmarks and get input from industry experts, and it’s also often possible to value freehold or leasehold assets, inventory and generally kick the tires. When you’re looking at a website for sale, though, a number of other issues may emerge during this process.

The Internet has expanded and become a significant and fundamental part of our lives during the relatively short period of its existence. We often wonder how we might function without access to the Internet, used as we are to jumping online whenever we need answers to our burgeoning list of questions. It is this invaluable nature that should make a website business attractive to start off with. If the whole business has been put together well, then it could represent major growth potential. As we go forward into the new decade, we will undoubtedly rely more on the Internet for our research and the subsequent purchase of services and products.

While the Internet is a relatively new medium you may come across conflicting valuations and a confusing array of facts and figures. It can be truly difficult to value an Internet business, but the good news is that due to its very nature you will likely have all the resources available to help you research, right online.

In general terms, an Internet business relies completely on its traffic generation methods and the quality of its websites. Remember that we are looking at Internet marketing methods, list generation, e-mail interaction and other variables and not conventional marketing approaches.

A website often relies on the strength of its domain name, and originality and creativity can sometimes represent a distinct value; you will be able to check this value at specific sites online. Remember that a majority of people find websites through search engines and the optimization of the site is important relative to the keywords used by the searchers. You will need to know what the specific keywords are for the business and how the seller actually markets them.

One of the first things you will need to do is to find out all about the construction and design of the website. You may well need to get help if you are not technologically astute. Find out who designed and built the website, who is currently in charge of maintaining it, what form of coding they used and where it is all hosted and maintained. You need to be able to ensure uptime and that you will have access to all the data and the ability to maintain the site religiously as you go forward.

Look at all the existing clients and see how long they have been doing business. You will need to know how they discovered the site in the very beginning and also what marketing initiatives work best for the current owner. If it is a service related business, just who will provide the services after everything is sold. The talent required to run such a business should not be underestimated and if you need to rely on the outgoing seller, ensure that he or she will be willing and able to help you proceed.

With an unusual business niche, you might look on the one hand at this and conclude it could be a definite and exclusive asset, but be wary if your business operates in certain areas, as legislation in the future may impact you. It almost goes without saying that you should be sure that there is a demand for the services or products represented by this venture and never assume that a novel idea will sell simply because of what it is. It’s always a prudent decision to buy website business assets selectively when you are trying to get into the online world!

Richard Parker is the author of the How to Buy a Good Business at a Great Price series. As President and founder of Diomo Corporation – The Business Buyer Resource Center, his materials, seminars and consulting have helped thousands of business buyers realize their dream to buy a business.

Whenever you buy a business, you will have to refer to a complex set of dynamics and will certainly do some work. Many tangible and intangible elements will have to be taken into account and while you may come across benchmarks in the industry, often quoted by those who are looking for a good price, every situation must be looked at differently. As such, it can be very difficult for a prospective buyer to value a liquor store for sale, especially when he or she looks at what appears to be a similar prospect nearby at a significantly different price. Why is there so much difference, even though each appears to be similar in type, style and size?

Whenever you buy liquor store business interests, the purchase will be represented by many different assets and the seller’s position at that time will be dependent on a variety of different factors. Some of these factors could include efforts already put in by the owner, marketing plans, client demographics, a particular focus on services or products, how well the staff interact and so on. With this in mind, you will need to get as much information as you can, research comprehensively and ensure that your process of due diligence is in place.

All of the following issues must be considered when you are contemplating the purchase of a liquor store:

* its location.
* are revenues and profits sustainable?
* what is the customer database like, and could it be expanded?
* how portable is the lease and what are the terms and conditions associated?
* population and demographics.
* any pending road construction.
* employee situation – working for cash or favors, such as may be the case with family members.
* any pending threats or opportunities that could significantly impact revenues.

Bear in mind that the liquor store industry tends to want to focus on industry benchmarks and while this is fine for some outline information, you cannot rely on it. No two businesses may be the same and either may focus on particular areas, such as beer and wine, or cigarettes or premium products, while the other focuses elsewhere. Look for abnormalities or something that really jumps out at you and make sure you understand why this should be. When all is said and done, is the bottom line of sufficient interest to you to go forward?

Look at the financials and consider the revenue make-up and take out of your calculations any cash sales that are reported by the owner, unless the sales are contained within audited accounts and have been included in tax reports. It is not fair for the outgoing owner to expect to receive value for these sales if he or she has treated them as “under the counter,” especially if they have not been reported for tax purposes.

Inventory offered must be saleable and not be made up of products that are out of date or unlikely to sell. For example, a huge stock of winter ales will not sell well as you enter the summer months.

To establish a base upon which to value and then decide to buy a business, look at net income, add owner salary, any perks, received depreciation and interest and then deduct any allocation for capital expenses. This latter item refers to any perceived payments you may have to make in the short to mid-term in relation to improvements, upgrades or necessary investments.

Richard Parker is the author of the How to Buy a Good Business at a Great Price series. As President and founder of Diomo Corporation – The Business Buyer Resource Center, his materials, seminars and consulting have helped thousands of business buyers realize their dream to buy a business.

There certainly is no feeling of freedom to compare with the joy of being self-employed and truly independent. You have the opportunity to determine the amount of time that you put in when you run a business and can prepare for your future accordingly. Nevertheless, there is quite a challenge ahead of you and no guarantees of success! Be aware that there are significant risks associated with buying a business and this concept is not for the faint of heart or for someone who is easily confused.

If you have never run a business of any kind before you may be wondering where to start. You might like to consider buying an existing business as it is true that a lot of the leg work has already been accomplished and the business is established to a certain degree. Although this may well be true, be sure that you have your eyes wide open whenever you walk into any situation, as you need to do a lot of research, talk to experts and be clear that the business you’re looking at is well valued, and subject to a good degree of diligent checking.

If you have determined that you are going to buy business interests, consider all the steps that you will need to take next. Never be tempted to short cut or to let your heart rule your head. You can build up quite a lot of enthusiasm as you consider the prospects that may lay ahead of you and this may lead you to jump in front and short cut the natural process of discovery if you’re not careful. Be warned, this can lead to serious problems if you’re not careful!

Time is definitely worth money, but any time spent in preparation here will be well spent, even though it may be a lengthy process as any successful entrepreneur can attest to. Whenever you buy a business for sale, the effort that you put in up front pays dividends all the way down the line as you proceed. Invest some of your money and educational materials and expect to spend a lot of money researching your business in terms of time allocated; do not be tempted to rush through to completion.

The self-employed business person possesses a certain number of essential personality traits and if you’re looking to buy a business, you must also be positive and realistic throughout the process. Always focus as you look through the haze and realize that if something is “too good to be true” then it almost always is; you need to cultivate a strong appreciation of common sense. Humor will definitely be an ally as well, as this procedure can be very lengthy and will require you to maintain a positive attitude.

Ensure that your levels of communication are good as you must be able to interact with the seller and other interested parties, while always maintaining your needs and requirements. By asking the right questions at the right time, you can determine a lot from the answers that you receive.

Richard Parker is the author of the How to Buy a Good Business at a Great Price series. As President and founder of Diomo Corporation – The Business Buyer Resource Center, his materials, seminars and consulting have helped thousands of business buyers realize their dream to buy a business.

A liquor store for sale can be one of the most attractive prospects for those who are seeking to enter the world of entrepreneurialism. Traditionally, liquor stores have been viewed as providers of “essentials,” with excellent turnover and fair margins. However, performing a liquor store valuation can be a tricky business, even under the best of circumstances. The whole industry has become overly reliant on out-of-date barometers, and more often than you might expect, an owner will try to sell you their business based on long-standing traditions instead of actual “real world” elements.

Due to these traditions, the industry has a somewhat veiled view of measures used to assess actual, individual business values. When it comes to liquor stores, no two are identical, as they have different locations, specialities, and the absence or existence of certain subsidiary products which could easily represent significant values in themselves, etc. Always remember that you need to focus on the claim of profits and not by reference to given percentages or to the fact that the business may have solid sales, but sales in and of itself means nothing.

While you can certainly go over the percentages which are provided to you and use them to clarify any abnormalities which come up, the most useful method of business valuation, liquor store experts all agree, is specifically based on cash flow or owner benefits. Often times, these individuals will refer to a figure which represents a “multiple,” and this multiple could easily be three, four or five times. What does the multiple refer to?

The most common figure used represents the owner benefits. This refers to the money that you will have left after you have taken all expenses into account and essentially represents the funds you will use to service the debt, pay yourself accordingly and to build the business. When looking at the books your owner benefit is defined as net income added to the owner salary, perks, depreciation and interest less capital expense allocation. The latter element refers to any major alteration or investment you will need to make in the foreseeable future, by installing updated computer systems or redecoration, as examples. Always be sure that any “add backs” are appropriate and reasonable.

As you are going to buy liquor store business at a premium, in relation to the “multiple” attached to the value, you must of course be sure that it is being sold as an ongoing concern. This claim is particularly appropriate when it comes to the inventory of the business. Make sure that you buy this inventory at terms which are realistic to you. Often, buyers will seek to remove the cost of the inventory from the valuation and add it on separately. It should always be treated as an integral part of the valuation and not used to inflate the seller’s position. Typically an inventory is turned over by a liquor business between eight and 10 times per year and you should ensure that your particular stock does not include a large element of items which may be unsalable or seasonable.

Be wary of an owner who claims a large amount of cash sales, as if they cannot prove it, you should never pay for it. In other words, they should not benefit twice – first when they fool the tax department and secondly from an inflated business sale value.

Remember that you must have a good conversation with the leaseholder or management company, assuming that the business occupies a rented space as is most common. Understand before you go any further what you would need to do to assume the lease or to qualify for a new one.

A word on owner financing, which may be offered. Generally speaking, you may add the value of between 30 and 50% of the amount financed by the seller and consider that to be a premium to the stated business value, versus an all cash transaction.

Be on the lookout during times when you meet with the owner, visit the premises or otherwise conduct your due diligence. Consider the number of patrons that you see going in and out of the store and use this as a benchmark, bearing in mind the time of day of your observation. Do you see many family members of the owner working there or watch the owner working excessive hours? Ask yourself whether you want to replicate the situation and how you can truly arrive at a value for the work input by the family members, especially if they are being paid off the books.

When considering how to value a liquor store, remember that valuation is an art not a science!

Richard Parker is the President and founder of the prestigious Diomo Corporation – The Business Buyer Resource Center. His celebrated materials, seminars and consulting have encouraged thousands of aspiring business buyers from around the World to pursue their dream to buy a business.

The process of gas station valuation can be a tricky business. Quite apart from the question of how you approach the actual valuation itself, you have many variables to take into account including principally whether the property is leased or owned and whether it is owned or part of a franchise agreement with a major oil company, for example. Above everything else, don’t forget to perform a thorough process of due diligence and pay careful attention to the financial documents when working toward reaching an accurate value proposition.

As someone who is looking to buy gas station business, you need to be adequately prepared to make certain decisions yourself, some of which will even need to be based on assumptions, while remembering to never rely on the information provided by the seller alone. It is up to you to determine the value of the business for you personally, as the amount the business owner thinks the gas station is worth has little if anything to do with its actual value.

Traditionally there are two different ways to look at gas station convenience store valuation, and these are either asset-based, where the income-producing assets are individually valued and totaled to make the purchase price, or cash flow based, which is the most popular. In this particular instance, the overall profit is adjusted in relation to specific expenses, multiplied and then used to reach a price. The multiple is essentially the premium placed on the business and can be anything from one, up to five times this figure.

Before you can reach a value that you’ll be satisfied with, it’s essential to have certain fundamental questions answered in detail. If the business occupies rented property you must engage with the landlord. Often times, landlords aren’t interested in setting up a new leases unless they’re quite confident that the new tenant has a significant amount of experience operating this particular kind of enterprise. However, even though they may have concerns about a potential new tenant, they are almost always willing to negotiate, as the idea of seeing their property sitting around empty is quite hard to accept!

As an owner of a gas station and convenience store you will have many different suppliers and vendors, some of which are absolutely critical to the ongoing success of the business. Never assume anything and make sure that you can enjoy an ongoing good relationship and great trading terms with these entities.

When it comes to cash sales, if the seller cannot prove it then you cannot include it as part of your value assessment. Some gas station owners will pride themselves on the amount of cash sales and put this to you as almost something magical. Remember that they have benefited from not paying taxes on this income, almost always cannot prove that it exists and cannot expect to therefore earn a premium from it.

Most often you will want to consider using the total owner benefit as a base to create a valuation for the business. This is defined as the net income of the business added to the owner salary, any perks, depreciation and interest less any amount that you might have to put aside for capital projects assessed. With regard to average business valuation, gas station or convenience stores that are full service will often command 2 to 3 times whatever the owner benefit figure it is. If it is a smaller establishment and self service, 1 to 2 times. Consider the volume of trade versus the amount of hours that you will have to put in. A 24-hour, seven-day a week establishment takes a lot of management and oversight.

While business financials and owner benefit multiples are primary to your decision-making process, remember to consider a host of other variables:

• During the process of observation, use a period when you actually count the number of patrons coming in and out of the station to enable you to come up with a good average for traffic.

• Remember that you should aim for between 25 and 33% return on your cash investment when purchasing a business such as this, although if you are going to be an absentee owner you should be prepared to accept a lower return.

• Watch out if the owner appears to be working excessive hours or is reliant on a number of his family members to help him staff the operation. Pay attention to employee records and costs and ask yourself whether you are prepared to be as hands-on as he appears to be.

• Consult with local authorities to see if there are any major road construction projects planned. Sometimes these are inevitable but can have major disruptive forces.

To really focus the attention of the seller as you establish a value for the gas station for sale, why not ask him or her to engage in an “earn-out” scenario, where a portion of the sale price is returned to them over a period of time subject to certain conditions. This will ensure that you have their full attention during the disclosure phase!

Richard Parker is the President and founder of the Diomo Corporation – The Business Buyer Resource Center. His inspiring materials, seminars and consulting have assisted thousands of business buyers with achieving their life long dream to buy a business.

Often times, a gas station for sale can represent an incredible business opportunity for a highly motivated entrepreneur. More than ever in this particular type of business, location is everything. You may have found what you consider to be a “gem,” near two major arteries or close to a busy intersection, but never be tempted to jump in with both feet first until you have conducted an adequate process of due diligence.

One of the most significant mistakes that an individual can make, particularly if they’ve never run, owned or bought a business previously, is to allow their enthusiasm take the lead over their good judgement. Even if you cannot believe the amount of vehicular traffic that passes the particular location you have in mind, or are worried that other purchasers could jump in before you, never be tempted to shortcut your discovery process. Most ideally you should spend at least four weeks getting a real feel for what you’re letting yourself in for, before you act.

However, if you have found one you really like, and you’ve decided to buy gas station business with a convenience store as well, you need to ensure that you’re generally pleased with the documentation which is presented to you by the seller, and of course, you don’t notice anything in particular that’s “sticking out” which might cause red flags to appear, then you should inform the seller that you’d like to have an observational period to give you the opportunity to find out whether or not you’d like to buy.

While involved in your observational period, you’ll have the opportunity to analyze the “real” operation of the gas station and convenience store and get a fairly accurate feel for whether the financial documentation you’ve been given is actual or contrived. If you are inheriting employees you will be able to see how they operate and how effective they are at making you money. This is infinitely preferable to just sitting down with them for thirty minutes and asking them questions. Above all else, this observational period will provide you with the opportunity to figure out a number of ideas which you could ideally put in place following your purchase to maximize future revenues and profits.

Get ready to check all the following items during your due diligence work:

• The financial records, profit and loss statements, balance sheets, tax returns, and registers.

• The inventory records, being on the lookout for discrepancies.

• The employee records – watch to see that they are well-maintained, all legal elements are covered and the liabilities are unearthed.

• All equipment should be inventoried and maintenance records checked. Is a process of regular maintenance scheduled?

• Review all supplier contracts and attempt to contact the major suppliers. Are there any clauses which cause renegotiation following a sale – if so, you will need to be sure that you are covered before you proceed any further.

• A business such as this can be heavily regulated. You do not want to purchase gas station business problems caused by their failure to keep up with inspections or any citations issued due to irregularities.

Important: Get environmental reports and be certain the business is in full compliance. Have your attorney check for any prior infractions. Make sure all tanks meet the latest standards, and proposed ones. If not you may face an enormous expense soon after taking over, not to mention the lost business from closing down to make these adjustments.

If you are generally happy with the paperwork, use your observation period to do just that – observe. Keep your eyes and ears open at all times and see what makes this business “tick.” Make a note of anything, however small, that you think might have grounds for improvement and while you should not live and breathe at the location for the entire period of time, you should nevertheless aim to be there during strategic moments – during opening, during major deliveries, during rush periods, during slow periods, during closing.

It isn’t advisable to cut short your observation period, as time spent now could represent a wise investment in your time.

Richard Parker is the author of the How to Buy a Good Business at a Great Price series. As President and founder of Diomo Corporation – The Business Buyer Resource Center, his materials, seminars and consulting have helped thousands of business buyers realize their dream to buy a business.

When considering a business for sale, purchasing a wholesale distribution company requires a comprehensive understanding of the industry, the processes required to keep this particular kind of business “ticking over” and a detailed knowledge of the primary income drivers. Such an enterprise is quite a bit different from any standard service business, and it can often be a great deal more complicated than it initially seems. In short, it is far more than a question of establishing a volume of repetition.

There are many considerations, as often a complex matrix of individual elements must be in place to ensure that this type of distribution company functions correctly. As a potential buyer, you really need to understand that these businesses usually operate on incredibly tight margins, and they often have to rely on an array of logistical elements to even operate, let alone sustain profitability. Your own due diligence process will require that you carefully analyze every one of these aspects individually and ensure that they’ll not only keep functioning after the sale, but will let you set achievable goals for continued expansion in the future too.

For simplicity sake, a wholesale distribution business for sale can be viewed as a “middleman” enterprise, and when running such an entity, it’s essential that you pay particularly attention to your suppliers. Always make a point of meeting with them – all of them, prior to making any major decisions, and make an effort to read between the lines to find out if there’s any kind of loyalty to the outgoing owner, which might place some of your business relationships in jeopardy after the deal is finalized. Look for long-term contracts, which should be of course transferable, or get a really good feel for the terms and conditions of renewal otherwise.

In a very competitive environment, if this prospect has any kind of exclusivity this could be a definite bonus. Try and analyze the entire market and see where you could sell additional products or services through the established distribution channel already in place.

Also, common issues are customer concentration problems whereby a few clients may represent a disproportionate volume of the revenue. Protect yourself with performance based deal terms.

As mentioned, wholesale businesses generally operate on thin margins. Due to this setup, financial arrangements and agreements are of primary importance. Review whatever kind of working capital needs you will require and be especially critical of cash flow analysis. How many days of grace do your suppliers afford you and what are the payment histories of your principal clients?

As with any business for sale, make sure that the assets purchased have a realistic value. Generally speaking, you may expect to inherit a fairly large inventory and you should get an independent valuation to ensure that this stock is not outdated and is saleable at the values claimed in the short run. Likewise, when you purchase wholesale distribution business assets, they must be fairly valued, especially with regard to transportation. The distribution fleet should not be in need of potentially costly repairs or replacement.

If the entire operation is housed within leased premises, one of your first ports of call should be the rental or leasing company. Whether we like it or not, the property owner or management company can have a significant say over the business transfer process and you must be happy that you can attain a solid, long-term lease within your financial parameters.

As a final buy business tip, always be wary if the business owner, as an individual or in concert with other partners such as family members, has a particularly visible “face.” Sometimes an entire business can be driven by personalities or the crafty marketing skills of the owner or his advisors. These may not be transferable assets!

Richard Parker is the author of the How to Buy a Good Business at a Great Price series. As President and founder of Diomo Corporation – The Business Buyer Resource Center, his materials, seminars and consulting have helped thousands of business buyers realize their dream to buy a business.