Wholesale is the middleman function performed by a wholesale distributor. The end users are customers, and the supply chain begins with the manufacturer on one end of the channel. Wholesale trade is also a major contributor to the country’s GDP (Gross Domestic Product). Before you become a part of this industry, it is essential to ensure the factors discussed in the paragraphs that follow. Besides keen salesmanship, a wholesaler must understand how to operate with efficiency and ensure that profit margins do not thin out in trying to keep both the manufacturers and customers happy.
Credit Management
Before you start a wholesale distribution business, you must understand the need to manage both receivables and payables. In wholesale, to maintain creditworthiness, the management of receivables is the key to success. Unless the amount owed by customers has been paid, suppliers/manufacturers will be delayed, and, thus, supplier relationships will languish over time. Therefore, to keep both relationships in balance, you must be able to synchronize the two parties. This may be successfully done by implementing credit limits for each customer during the bookkeeping process.
Moreover, do not extend their debtor days beyond the due date on unnecessary requests. Get all customers on board regarding the standard debtor’s day policy and ensure that each customer knows the ‘no-exception’ policy in advance. As for the suppliers/manufacturers, ensure that all suppliers are paid within the provided time, and flexible days must be negotiated before getting them on board. Good sync between the two parties will ensure your wholesale distribution business’s seamless functioning, which will be able to keep its creditworthiness intact.
Cost and Funds Planning
For any wholesale distribution business, the largest cost factor to consider is inventory cost. This cost is then followed by payroll, maintenance, equipment, and procurement cost heads. Before you start your wholesale distribution business, make sure these cost heads are meticulously sorted to avoid any last-minute surprises. It is recommended that sufficient capital requirements are estimated before going on board. This initial capital will include inventory as a major cost as wholesale is solely dependent on inventory. Before you start a wholesale distribution business, you must have an accurate estimation of these costs to secure funds to initiate the venture. As for funding the business, personal savings may be the initial go-to for any start-up, but other financing sources need to be secured to bring in huge inventories. The main product for any wholesale distribution business is inventory, without which the set-up is useless. Secure funds even through informal sources such as family or friends to begin with. Formal channels such as bank loans, hybrid securities, trade credit, crowdfunding, etc., may eventually be approached at a later stage.
Contingencies and Backups
As previously mentioned, inventory is the most crucial of costs. It is also the main product that wholesale distributors must procure. Without this procurement, operations may never commence. Therefore, before you start your own wholesale distribution business, you must plan for unforeseen delays and uncertainties regarding inventory to ensure minimum lost orders. Lost sales are not a very healthy sign for a newly established business. It usually gives a bad first impression on customers. To ensure honoring your sale obligations, backups and contingencies must be set to ensure seamless operations during a shortage or unnecessary delays from suppliers. Lost sales are just one phenomenon; customer satisfaction is yet another. To keep customer satisfaction at par, inventory may be kept aside for use during shortages and delays, depending on the product’s nature, of course.
Conclusion
Starting a wholesale distribution business can be a challenge, but it can also be profitable. You must ensure you establish plans and a positive reputation to successfully and implement the steps mentioned above.
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.
