Business Valuation Blog | Understanding Buying / Selling a Company

The Case for Valuing a Distribution Company

Posted by Business Valuation Specialists LLC on Jun 1, 2016 11:00:00 AM


As our world becomes more connected, the role of distribution companies in daily business and personal life is becoming more and more important. From direct-to-consumer sales to ship-to-store and similar offerings that are becoming more popular, investing in a distribution business seems like a great way to improve your financial standing. But valuing a distribution company before putting your hard-earned cash on the line is smart business. Here's why:

The Case for Valuing a Distribution Company to Ensure Your Investment

Distribution businesses often operate on somewhat slim margins, with productivity and efficiency improving or reducing profitability very quickly. For this reason, they can either make money or lose it very quickly with just a few changes in business practices. A company that is being run productively often has exceptional managers and executives focusing on constantly improving the business' bottom line, making it an excellent investment. But what kind of returns should you expect?

Past performance isn't always a good indicator of future profitability. Changes in management, procedures and the market can all drive profits up or down, depending on how they affect sales and profits. Figuring out what each change can mean can be difficult, if not nearly impossible for the average entrepreneur or investor. For this reason, many savvy investors rely on business valuations to get a better idea of what to expect in each investment opportunity. Why?

The valuation of a company takes many aspects of the business, industry and market into consideration when developing a quality business appraisal. The company valuation will include details such as how efficient and profitable the business is at current. It will look at what processes and management techniques are driving success in that distribution model. It will investigate the industry and whether it's heading into a boom or a bust cycle, as well as how the business compared to its competitors. The company valuation will also look at the market and determine whether it is expected to see the same demand in the future.

This type of information is commonly provided in more general business appraisals, but using it to determine profitability in a distribution business can help you ensure that your investment makes sense. The business appraisal will provide you with details to ensure you know not only what the rewards of investing in such a business may be, it also provides you with the drawbacks and potential risks that you could be assuming with your investment. By going into an investment situation with a distribution company with a quality business appraisal, you can rest assured that you're investing your money with your eyes wide open. 

We've all heard of investment opportunities from business owners looking for capital. Very often, these opportunities seem too good to be true, and typically are just that. By hiring a certified business valuation specialist uses a standardized methodology to ensure that you're receiving a report from a neutral third party.

As you can see, valuing a distribution company can make a big difference in ensuring your investment is sound and likely to provide great returns.

Topics: distribution company, distributor