February 25, 2022 | Last Updated on: January 10, 2024
DISCLAIMER: This article was written in 2022 and has not been updated. For more up to date information about small business funding products and options, please browse our recent articles.
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The wholesale distribution sector has experienced complicated and profound changes over the last two years. Pandemic-related supply chain challenges, including sales disruptions, labor shortages, and inflation have impacted everyone from established wholesalers to new startups. Despite these challenges, the wholesale distribution industry is almost guaranteed to thrive as global demand for most products continues to increase. If you’re thinking about starting a company in this space, read on for our best tips and principles about creating a business plan:
Before we dive in though, it’s important that entrepreneurs and potential business owners have a clear understanding of what a wholesale distribution business actually does. Wholesale distributors are the main link between manufacturers and retailers. As such, it’s their job to keep products flowing between these two parties. Wholesale distributors are responsible for a variety of tasks, including:
Now granted, it’s also common to see companies that are just distributors or just wholesalers. In the case of the former, distributors contract with manufacturers to move goods down the supply chain to wholesalers, retailers, and even consumers. The latter (wholesalers) buy bulk product from the distributors and sell to retailers in smaller quantities. This reduces the risk for retailers, providing rapid access to additional product should supply run low, without requiring them to maintain excess inventory that may expire before it is sold. The primary goal of a wholesaler is to satisfy the needs of the retailers. They do not interact with any customer base as they aren’t responsible for whether those products sell or not. Wholesalers can adjust their products to whatever the needs of the retailer are and only fulfills those demands. Wholesale distributors take the best of both worlds, contracting with manufacturers and moving product down the supply chain, but also maintaining bulk storage of inventory in localized areas and selling to retailers at a profit.
If you’re interested in starting your own wholesale distribution company, it isn’t much different than starting any other type of business. Follow this 8 step guide to get started:
Do your research and identify a product that serves a need by contacting various retailers to understand what the wholesale market demands. This will allow you to create potential sales connections. Additionally, you can review market research and trends across industries to uncover gaps in the market. It may be useful to start with a product or industry you are familiar with, but there’s also something to be said for being opportunistic. For example, early in the pandemic, there was a shortage of N95 masks and toilet paper, and savvy entrepreneurs might have been able to solve a pressing problem while launching a successful wholesale distribution business.
A niche is a small segment of the market with similar needs and profiles. Choosing a niche allows you to specialize and increase your competitive advantage while enhancing your relationships with manufacturers. The potential to partner with the best manufacturers to deliver high-quality products will allow for better control over your business.
There are several models of supply distribution to sell your products to clients. For example, you can use a brokerage, import, and export model, or an online sales distribution strategy (and remember, e-commerce businesses require fewer employees, thus reducing overhead costs). Consider also how social media will play a role in your overall marketing strategy. If you’re new to the industry, you may want to start with just one type of customer, for example, retailers or consumers. Otherwise, things can get complicated fast.
Inventory management will determine how many employees your business will need and how large your warehouse should be. You will also need to consider organization and shipment software that will enhance efficiency for order processing and delivery. Warehousing or dropshipping products are two ways you can manage inventory. Warehousing allows you to keep stock and buffer immediate price changes, but dropshipping is more flexible and reduces additional costs for the product.
You can rent, buy, or lease a warehouse of proper sizing for your inventory. Depending on your stock, you can even opt for a small storage unit or garage.
A business license is required to operate legally. Registering your business will provide you with a tax ID number and any additional licenses your state requires for wholesale distributors. A business lawyer can also assist in determining the exact forms needed and the regulations in your state.
Many manufacturers can be found online through a simple search of the products you want to sell. You will need to discuss pricing, transportation, and contracts. You can reduce competition by working exclusively with a single manufacturer.
When it comes to getting new customers, you can contact local retailers and alert them of your product offerings via a virtual or physical catalog. This will encourage businesses to place wholesale orders through your distribution company. Regularly communicating about your inventory and engaging in open conversations with your retailers will help keep them happy. If you are serving consumers, leverage paid ads to reach a highly targeted audience that is ready to buy, or simply list your product on Amazon.
As you work through the 8 steps outlined above, you will want to start writing down your formal business plan. A business plan is necessary for operating a well-run business, but it’s also required if you need to apply for a business loan. The aim of a business plan is to ensure that your reader (whether an employee, investor, or potential lender) understands how your company works and how it plans to grow. There are five key elements you can use as a template for a basic business plan:
This is the first, and most important, impression your reader will have of your business. It will define their opinion of your business as they read through the entire plan. A good executive summary includes several key facts about your business such as the description of your wholesale distribution business and the types of products to be sold. It should also include target markets, a financial outlook (and requirements for succession), as well as past and future achievements and goals. We will expand on these in later sections, so keep this succinct. Tip: The executive summary is the first section of the business plan, but it is the last one you should write. Think of it as a synopsis of what is to come for the rest of the business plan. It will be easier to write once you have every other section mapped out.
The business overview is an explanation of what your business proposition is and how it relates to the wholesale distribution market. You will need to explain precisely what your company does, the products and services you distribute or sell, the market you operate in, and who your customers are. Tip: Make sure your reader understands the market environment of the wholesale distribution business. It will be important to include your competitive advantage and how you will become profitable. Including market dynamics and vendor relationships will provide a better picture for the reader. A thorough business overview includes:
This section answers the question, “How does your wholesale distribution business position itself and compete with existing players?” The following is a comprehensive outline to include:
Tip: Avoid writing that you have no competition. Every business has competitors! Some are direct, like other wholesale distributors, but others are indirect, like people purchasing used products directly from other consumers.
The operations and management of your wholesale distribution business are the people and processes that help you operate daily. They help you deliver on what you promised in previous sections. You will need to focus on two things:
Tip: Investors will review this section to guesstimate salary costs. It is expected that this will be a significant cost center.
This section includes projections, budgets, and goals, and should include an explanation of your assumptions when making a forecast or projection. For example, the acquisition of new retailers, expanding into new product niches, etc. A proper financial plan includes:
Tip: Include an appendix that contains detailed spreadsheets and calculations to support the financial statements. Read this ultimate guide to managing small business expenses to help solidify the financial section of your business plan.
Ultimately, the success of your company will depend on attracting and retaining customers who want what you are selling. This is true whether you are focusing on resellers or consumers, and it’s up to you to take the initiative and identify what you can do to make your product easier to sell. Consider the following strategies to get started:
Starting a new wholesale distributing business can be overwhelming. However, following the step-by-step guides above are a great starting point. You can set yourself up for success by building a strong business plan and creating a strategy to acquire customers. And of course, if you need business funding to get up and running, be sure to check out these helpful product offerings. Sam Samarasinghe did and was able to get a loan that funded his fish import business with just a few clicks on his computer.
