How to Boost the Value of an Industrial Equipment Distributor
2015 predicts extreme growth for the Wholesale Distribution Industry – making it a great time to sell.
Industrial Equipment Distribution has become one of the largest and most profitable industries in the United States market today and is only expected to continue growing through 2015. Industrial Equipment Distribution encompasses several sectors, varying from Material Handling to Wholesale Distribution to Equipment Manufacturing and all of these play a very important role in the American economy today. If you own a business that falls under this category, the past 5 years’ trends combined with future outlook for 2015 makes it a perfect time for you to consider selling your business. The best time to sell a business is when it is trending upwards and the economic outlook for your industry is bright – as it is in the Industrial Equipment Distribution field right now. But before you call a business broker to begin planning the sale of your company, take the time to implement these 5 practices to ensure your business valuation is calculated using the highest multiple possible.
Currently, there is an estimated 8,701 companies in the United States operating under the Industrial Equipment Distribution category. The Industrial Equipment Distribution sector is defined as “establishments that sell products to retailers, merchants, contractors and/or industrial, institutional and commercial users”. On average, these companies employ around 9 people and experience profit margins of about 5.9%. Overall, Industrial Equipment Distribution is part of a much bigger sector, Wholesale Distribution, which contributes 7% to the value of the nation’s private industry GDP every year. 2015 is slated for extreme growth within industry, with industry leaders predicting a 5% growth rate every year through 2018.
With such growth on the horizon, why is now a good time to sell? If your Industrial Equipment Distribution business has been experiencing growth the last few years and trends predict stability for the future, buyers are going to be very attracted to your business. Oftentimes, business owners expect their business to worth much more than it actually it is and are disappointed to find that a few small changes could have increased the value of their business. By having an idea of what formulas are used to calculate the value of a business, you can start taking steps now to ensure you receive a sales price that feels good to you. Keep in mind that only a professional business broker can tell you the true value of your business.
- 50% of Annual Revenues + Inventory.
- 2-5x EBITDA.
Now that you know partially of what goes into calculating the sales price for an Industrial Equipment Distribution business, you can begin making changes to ensure your sales price is on the higher end of these multiples. Based on our experience, these are 5 key areas of focus that will help you to rise above your competition, excel in your day to day operations, and provide you with the highest valuation when it comes time to sell.
Inventory Management
Perhaps the single most important way to increase the value of your business: inventory management. Inventory control is something that all types of businesses within this sector struggle with, but since inventory is a main component in sales price calculations, it is worth the time and money to properly manage. Accessories and used equipment are the biggest money makers so implementing an inventory management plan to consistently track these assets will help you when selecting units for sale and when a buyer wants an inventory list. A good rule of thumb is not to refurbish equipment in order to build a used inventory – the billable hours with no immediate profit offset will drag down your service numbers.
A good industry practice regarding new equipment is only stock what you will use. Forecasting and manufacturer relations can go a long way on planning and stocking new equipment. Some manufacturers will allow distribution centers to participate in a Consignment program, which allows the distributor to stock commonly sold new equipment so that they have it on hand, yet, if the equipment does not sell within a certain time period, the manufacturer will take it back. Consignment programs are incredibly beneficial to distribution centers and something to be considered prior to selling your business.
Strategic Sales & Marketing
For an industry that is growing so rapidly, many companies within the Industrial Equipment Distribution sector are very antiquated when it comes to sales and marketing plans. Developing and implementing a strategic sales and marketing plan for your business will not only drive sales revenues now, but show a potential buyer that your business is ahead of the curve and slated for future success. Oftentimes in this industry, we see the owner of the business selling product and fostering client relationships. Investing in a commissioned sales team and assigning territories throughout your APR will do wonders in increasing sales and winning new bids. Once you have grown and more revenues are coming in, you may even consider expanding your sales team to include product support and aftermarket sales representatives.
From a strategic marketing standpoint, having a developed website, social media presence and refined sales literature can help set you apart from other businesses in your industry simply because very few of them invest in marketing. Use your website to display your inventory and update it regularly. Social media is a wonderful tool to engage with clients on a personal level that allows you to stay in their mind and become known as more than a brand to them.
Strengthen Infrastructure
As we have mentioned before, we see many owners in this industry working in the business, not on the business. Stop! Even if you are years away from selling, you need to position the business so that if you do decide to exit, the business can continue to thrive without you. The best thing you can do in the years prior to selling is investing in your team and taking the time to fully develop all departments. Identify your core departments (sales, service, parts, shop, etc.) and hire managers or supervisors for each one. Have lower level employees train each other so that departments can continue to function in the event of an unplanned absence. Having these employees create training manuals is never a bad idea either. In the long run, even if you do not decide to sell, developing a strong infrastructure will help you be a better owner and overseer.
Invest in a Complete Software System
Surprisingly, most businesses within this sector do not have a complete software system to help them manage operations. Software systems not only help owners now when it comes to managing their business, but it also seen as a very valuable asset at the time of sale. Investing in a system now and working out the kinks long before a buyer is interested in you will only help drive up your sales price and further refine your company. The Industrial Equipment Distribution sector has several customized software systems that manage all aspects of the business and intertwine with other departments. A complete software system can also help you manage your cash flow, generate reports, find the true netbook value of assets and serve as a liaison between departments. We have listed a few below that you may want to consider for your business.
Supplier Relations
Supplier relations are incredibly important for Industrial Equipment Distribution businesses. There are three types of suppliers that you will want to flourish relationships with: manufacturers, vendors and financial lenders. For manufacturers, having a good relationship with them gives you access to their product lines, brand and support while giving you a higher quality product and name recognition. Oftentimes, successful distributors are able to negotiate bigger discounts from the manufacturer and special programs to assist in sales and marketing. Vendors relations can also significantly increase the value of your business for similar reasons: negotiated discounts, quantity pricing and sometimes, even with lead generation. Having vendors that sell accessories to your core product within your APR as partners, will ultimately help you win more bids and lessen lead times. Finally, financial lenders can be a powerful ally in the Industrial Equipment Distribution industry. If your product requires financing, lenders can help you with attractive lease packages, low rates and off-lease portfolios. Off-lease portfolios can be extremely valuable to a sales team, and gives you access to true leads that will turn into sales.
For an owner of an Industrial Equipment Distribution, 2015 is going to be a great time to sell your business. There are buyers actively looking in this industry for a successful company that has shown consistent growth and if that sounds like you, you should begin taking these steps to further increase the value of your business. Someday you will decide to explore your options for a sale and hopefully, these 5 tips can help you prepare. Viking Mergers & Acquisitions can help you to understand where you stand today and how far you need to go. We offer a no-cost, no-obligation valuation for business owners. Valuations are a priceless tool that all business owners should equip themselves with and we are here to help when you are ready.
