Business Valuation Blog | Understanding Buying / Selling a Company

What are Some of the Differences When Valuing a Wholesaler?

Posted by Business Valuation Specialists LLC on Jul 5, 2018 2:13:00 PM

When you work in the wholesale industry, your business has significant differences than other businesses. You're not tied up in manufacturing, nor do you spend time marketing to the general public, so your marketing, sales and distribution process is much different. But when it comes to valuing a wholesaler, which differences are important in the valuation process and how does it impact your final business value? Here's a quick overview of how wholesale businesses are different than other industries when it comes to business appraisal.

What are Some of the Differences When Valuing a Wholesaler?

Let's start by defining a wholesaler. Retailers purchase material or products from wholesalers to sell to their customers, which results in a significant amount of their assets tied up in products and store fixtures or shipping materials and equipment. Manufacturers produce the materials or products, so they have a good amount of their assets tied up in manufacturing equipment that is specialized to their particular products. Logistics providers have a lot of their assets tied up in trucks, trailers and shipping materials.

Wholesalers, on the other hand, receive items shipped from the manufacturer to them through a logistics provider and then sells that material or product to a retailer, shipping through another logistics provider. They typically purchase the materials or products at a reduced rate and much higher quantity from the manufacturer, then sells the products at somewhat lower quantities and higher rates to the retailer. This means that much of the assets wholesale businesses have are tied up in stock and warehousing assets such as buildings, material handling equipment and similar areas of concern.

But what type of other factors can impact a wholesale company's bottom line? One area of consideration is the age of the business. A new wholesale company may not have enough expertise to do well against more established competitors. Why? Though many companies have gone to using the internet to find their customers or suppliers, many wholesale companies are still somewhat relationship based. It's a matter of who your customers know and who they want to do business with. This can make it a difficult business to break into if you don't have a lot of contacts at the inception of your business.

What about established wholesale companies? In this situation, there are still some factors that can impact business values. Is the company adapting its stock to meet changes in demand, such as adding components that work well in Internet of Things or smart home situations? Has the company digitized to meet new challenges, demands and opportunities in the market? Does it have any serious competition or is it still a stand-alone supplier in the industry? By knowing the answers to these questions, the business appraiser can calculate an accurate value for the company.

A wholesale business is very different than other companies that are involved in the sales and distribution process, so valuing a wholesaler is also a different process than other industries. For that reason, it's vital that you select a business appraiser be certified so that they have the knowledge needed to properly calculate the value of your company, as well as having experience in the industry so that they understand the factors that make your business different from others in the retail sales supply chain.

Topics: valuing a wholesaler