Growing Your Business Via Small Acquisitions
Once you are headed for $5 million in annual sales, you’ll have opportunities and the resources to grow your business by acquiring smaller distributors that are typically selling under $1 million.
The Challenge for Small Distributors
Most of us started there – doing it all ourselves. Maybe working in the basement and eventually moving into a small business unit or shared office environment with one assistant. Our strength was sales, but we did purchasing, followed up with vendors, put out fires, played the shipper role then did invoicing at night or on Sundays as we got really busy. Work/life balance gets upside down and family life suffers. Vacation? Who will cover for me?
You may have made the leap to a real business and have the infrastructure associated with a successful $5 million distributor, but many struggle to make that leap. They are great at sales, and that’s what made them initially successful, but running a business and dealing with employees isn’t for everyone, so they struggle to get to that next level.
If they stay small, they have competitive challenges including:
Cash flow as vendors are reluctant to give them much credit
Margins as they don’t qualify for EQP pricing from vendors
Inefficiency as they don’t have the kind of money to invest in cutting edge technology like you do
Programs aren’t possible as they require money for inventory perhaps, technology, warehouse space, etc.
Marketing, support staff, websites – all become challenges
You Have the Solution
What you can offer the small distributor is a home. A home that changes their life for the better and takes away their pain points. Come join your reputable firm as a sales rep. bring your clients with you and we’ll provide:
Financing for your orders so you can take the money invested in your small business and pay down your mortgage, buy a new car or take a vacation
Support staff to process orders so you can do what you do best and double your sales
EQP with all vendors and even incentive programs
Industry leading technology that improves your productivity and helps you provide a great client experience that differentiates you from the competition
Lifestyle improvements – spend more time with your family and have less financial stress
How Do You Find These Small Distributors?
Start by getting involved in your industry at the local or regional level. Join your RAC board, go to the regional supplier shows, attend the industry networking events, etc. Smaller distributors attend these functions too, so engage with them, ask about their business, and explore for opportunities. Think of this as a long sales cycle where you will have to cultivate prospects, earn their trust, and stay in touch before closing a deal.
Ask your best vendor reps for help. If you have a good relationship and they respect your success, they might be willing to introduce you to a few smaller distributors in your area, especially if they have financial issues and are paying the vendor slowly.
The good news is, there are lots of these smaller firms out there. Not all will be a fit for you and some will want to grow larger on their own and be like you which is fine. But some will get frustrated and eventually, when the time is right, seek alternatives and that could be your company.
Acquisition might be too strong a word here. These small distributors aren’t worth anything as the owner is likely the only sales rep. If he/she leaves, the business doesn’t exist.
A good deal is one that is win/win. You get a rep with experience, a book of business and ability to grow. The small distributor owner gets a home that allows him to grow, get rid of his small business headaches and improve his quality of life. It’s mostly about lifestyle and career.
So, no large payment is required. Maybe some cash flow help for a few months such as early payment of commissions. Maybe a small bonus after the first year if it works out and the clients make the transition to your company.
Long Term Strategy
These deals don’t happen every day and can take years to come to fruition. But build your network, track prospects in your CRM system just like clients, keep in touch regularly, and if you can close one deal per year over the next five years, think how that adds to your growth.