Whether you are just thinking about, or you have decided that you would like to start running a wholesale business, there are a number of items that you should spend considerable time planning and researching before going full steam ahead. Proper planning and fact-finding up-front can not only save you from a lot of headaches in the beginning but can also mean the difference between a successful wholesale business versus a monetary disaster waiting to happen.
In this article, we will provide you with ten tips to help guide you along the way as you begin planning for your business. They are presented in chronological order so that you can use them as a way to plan out the proper steps along the way. Remember, success depends on many factors – and the most important factor is your determination and energy you put into making your business a success!
Step 1: Ask Yourself Why?
Why do you want to get into the wholesaling business? It is because you would enjoy working with other businesses and manufacturers being the main point of contact between the two? Or is it because you think it is an easy way to make money quick?
Wholesaling is a demanding business and can require lots of up-front capital, warehousing, logistics planning and customer service skills. As the main channel between the manufacturer and retailers, you may find yourself dealing with hundreds of thousands of units of merchandise needing to be shipped across the country on a moments notice. Large retailers often pay on a Net-10 or Net-30 schedule, meaning payment is made after the goods are delivered. What would you do if a retailer did not pay or went bankrupt before you received payment?
Step 2: Study Your Competition
It does no good to enter a market where there already exist established, credible wholesalers for a given product. Retailers want to know they have a dependable supply source that meets their terms and often will not change wholesalers for an established product. Just because you build the warehouse does not mean they will come.
Use your local Chamber of Commerce, the Internet and even visit with retailers to find out what wholesalers exist in your area. If you want to specialize in a specific product, contact the manufacturer directly to find out who handles wholesaling for them already in your region. There may be none in your state, or there could be three down the street.
Step 3: Assess your Financial Situation
Wholesaling can require a lot of up-front capital and expenditures before you even see one cent of income. Do you have the resources to spend on setting up a relationship with a manufacturer who will most likely require you to buy in huge quantities from them? Can you afford to wait up to 30 days for payment? Do you have the money to invest in shipping freight or setting up your own delivery service?
Be sure to look past the startup costs as well. Employees, taxes, property rental and insurance are just a few of the things you will need to factor in as ongoing costs.
Step 4: The Business Plan
A solid business plan is the foundation of any business. You need to make sure that you have spelt out what you intend to do and how you intend to get it done. Not only will banks require this for financing, but often other businesses you deal with will want to see it as well. It should be the guidelines that you follow every day in your business to achieve the goals you have set forth.
For this part, it is often wise to work with a business lawyer or seek professional advice from business consulting services. A good resource to help you find people in your area with the necessary skills and background is the Small Business Administration, located on the web at http://www.sba.gov.
Step 5: Apply for Licenses, Taxing Certificates and Other Necessary Paperwork
Nothing is as certain as death and taxes. It is no different in business, with one exception. As a wholesaler, you will be required to pay taxes and other fees to your state and to the federal government.
The one exception is that you will be granted tax-exempt status for the actual goods you are moving between the manufacturer and other retailers. This can be a tricky process and is handled at the state level.
Again, for this part, you will want to make extensive use of your state taxing authority as well as local Chambers of Commerce. One wrong mistake here can end up costing you not only money but possible your entire business.
Step 6: Establish Your Facilities
Location, location, location. Businesses must exist somewhere and like most things in life, there are rules and regulations on where they can be. Will you be having semi-trailers coming to your location at all hours of the day and night? Will you have a storefront for vendors and clients to come calling at? What about electrical, water and sewage needs?
Zoning laws exist to make sure that the right structures end up in the right places. Nobody wants a warehouse next door to them in a residential neighbourhood. Work with commercial real-estate agencies to find a suitable place for your business.
Step 7: Establish Your Relationships
You have the facilities, you have the financials – now do you have anyone supplying your product or customers for that product? Work with manufacturers and retailers to build a relationship. This can be one of the most difficult parts of the experience and is where the rubber hits the road.
In addition, relationships extend beyond your customers and suppliers. It is good practice to establish relations with your local Chamber of Commerce, retail associations and labour organizations in your area.
Step 8: Marketing
Wholesalers traditionally don’t advertise. That doesn’t mean you shouldn’t market your business to others, after all, how can you build relationships or expand on existing ones? Wholesaling guides are published and distributed to many retailers and this is where the bulk of your marketing efforts will be directed. The other half should be in going to retailers directly, meeting with buyers and outlining your services. Just because you have a customer today does not mean you can rest on your laurels.
Marketing works hand in hand with building a relationship and maintaining it.
Step 9: The Machine in Motion: Servicing Your Customers
Product is coming in, retailers are placing orders – we’re all done, right? Not exactly. Getting the product to your customers, answering questions about delivery timelines, working with vendors to obtain new product lines, it is a complex and demanding part of the business.
In today’s “just in time” marketing model a delay in shipment could mean the end to a business relationship. You must keep your customers informed of any status changes, pricing concerns and product movements from your facility to their loading dock. This is where backend systems come into play by maintaining records and logs of all activity with that customer. Do not underestimate the value of a good Customer Relationship Management system (CRM).
Step 10: Employees, Accounts Receivable and Other Financial Matters
Once everything is up and running your next focus is your business financials. Employees need to be hired and fired. Payroll needs to be met. Money must come in, and money must go out. Here you should invest in financial talent and services if you do not possess them already.
One oversight can mean the loss of hundreds of thousands of dollars; a missed payroll deadline could mean your entire business comes to a halt. It is critical that you constantly keep an eye on the books and on your expenditures. Know when to tighten the belt, and know when to expand.