Wholesale Business Valuation

Wholesale is an extremely popular choice for the small-medium business category for many buyers. Why? Because retail businesses are being increasingly perceived as being risky businesses, especially where they are in shopping centres and at the mercy of high rentals, short leases, long trading hours, and wall-to-wall competition.

Owning a wholesale business usually means that (unlike retail) the security of tenure and length and expense of a premises lease is not a critical issue. That is because wholesale businesses are generally not location sensitive.

A wholesale business may also have greater growth potential than other businesses because it can distribute across a whole region, a whole state, or even nationally. Therefore it can grow to become a much larger business. It can also choose to represent more and more manufacturers’ products as time goes by. One downside of a wholesale business is that it needs working capital as a result of having to fund debtors and also because as it increases its inventory there is a need for more capital.

Issues such as being the exclusive wholesale representative for a supplier, the termination clauses and length of agency representation, and the transfer of the agency agreement when a wholesale business is changing hands are all points of consideration a good valuer will examine when valuing a wholesale business.

Another point worthy of note relating to the wholesale sector is they are often attractive to business migrants from countries like South Africa, India, and China because the migrant can combine their overseas contacts with the wholesale business to engage in import/export activities.

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The contents do not constitute legal advice, are not intended to be a substitute for legal advice, and should not be relied upon as such for any purposes. You should seek legal advice or other professional advice in relation to any particular matters you or your organisation may have.