If you want to buy a distributorship, you are buying more than inventory and customers. You are buying a position in a supply chain that depends on a supplier’s agreement. Careful checking beforehand can make the difference between a steady business and an expensive surprise.
What you are really buying when you buy a distributorship
A distributorship’s value rests on the right to sell certain products to certain customers. That right comes from a contract with the supplier, which may or may not transfer to you. Equipment, vehicles, inventory, and customer lists matter, but they are secondary if the supplier can end the relationship.
Start by asking for the supplier agreement and checking whether it can be assigned to a buyer.
Verify the supplier relationship
Speak with the supplier before you commit, if the seller allows it. Ask whether the agreement will continue with you as owner, on what terms, and for how long. Request written confirmation.
- Current agreement and remaining term
- Territory definition and exclusivity
- Minimum purchase and sales requirements
- Pricing history and expected changes
- Whether the supplier approves the sale
Check the numbers
Review financial statements, sales by customer and product, and margins. Our guides to financial statements for business buyers, distributor profit margins, and how to value a distributorship explain what to look for and how to judge the price.
Look carefully at inventory, which is often negotiated separately. Count it, review age and condition, and be wary of obsolete stock.
Look at the customers and the market
Find out who the customers are and how long they have bought. Concentrated sales to a few accounts raise risk, as explained in customer concentration risk. Talk to customers if possible, and check what competitors offer in the territory.
Plan the deal and the handover
Decide whether you are buying assets or the company, and structure the transition so you can learn the business. See asset sale vs stock sale and seller transition period. Include protections such as a non-compete and, where appropriate, ask about financing options.
Get advice before you buy a distributorship
Have an attorney review the agreement and purchase documents, and an accountant review the numbers. Use the full distributor due diligence checklist as your guide. When you buy a distributorship with verified facts, you reduce the chance of costly surprises.
More reading to help you buy a distributorship
- Distributorship Agreement: Key Terms to Review Before You Sign
- How to Value a Distributorship Before You Buy or Sell
- How to Sell a Distributorship: Prepare, Price, and Transfer
- How to Buy an Existing Business: A Due Diligence Guide
- How to Value a Business Before You Buy: Multiples and Seller’s Discretionary Earnings
- Working With a Business Broker: How to Find One and What It Costs
- SBA guide to planning your business
For more background: U.S. Department of Labor.
Keep reading
If this topic is useful to you, these related guides on SmartBizOpps are a good next step.
