What determines the value of a wholesale business?

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Basic valuation

The basis of valuation is more or less identical for all companies. The Nimbo Company Value Guide provides you with useful background information and everything worth knowing about the topic.

Calculation example for a wholesaler

Assumption: A wholesaler with up to five employees achieves a profit of 50,000 with a turnover of 500,000.

Multiply the profit by an industry-standard multiplier. There is no binding multiplier that could be mentioned here. For small to medium-sized wholesalers, a multiplier between 3 and 6 is common.

If we assume a multiplier of “4”, the valuation would be:

Value = Profit x Multiplier = 50,000 x 4 = 200,000

General value drivers

Not only the profitability and size of a company determine its value. A series of internal value drivers also affects the selling price – both positively and negatively. Based on the basic valuation, the value can increase or decrease by up to 25%. The most important value drivers here are:

  • Independence from the owner: For a buyer, the question arises whether the success would continue without the current owner. The less the company depends on the activities and relationships of the owner, the higher the purchase offers observed on average.
  • Growth prospects and potential: Investors are interested in a company’s future prospects. Questions that are important here: Is the main market growing? What percentage of growth do I forecast for my company for the next three years? Is there potential within the core competency that could be profitably exploited? Is there a shortage of skilled workers or is the recruitment of new employees possible without problems? Is there sufficient cash flow for replacement and expansion investments?
  • Market position: This takes into account the company’s catchment area and pricing policy. Companies that operate beyond the regional level and those that can enforce prices above the market average receive significantly higher purchase offers on average.
  • Balance: How dependent is the company on individual customers or business partners (e.g., suppliers)? Companies without large cluster risks receive higher purchase offers on average.
  • Employees: A motivation for buying companies can be access to new qualified employees who are difficult to find in the job market. Companies that can attract and retain desirable employees receive significantly higher purchase offers on average.

Industry-specific factors for wholesale

Which factors are especially relevant when valuing a wholesale business? What determines the value besides the obvious things like turnover and profit and the general internal value drivers? What influences the attractiveness and thus the value of the company? If your company presents itself exceptionally positively in the following points, this can mean an additional increase in value of approx. 10-15% on the base value in total.

  • Supplier structure as a value driver: The supplier structure has a significant impact on the value of a wholesale company. If it is well thought out and diversified, this has a number of positive effects. Advantages can include: lower costs and higher margins due to greater negotiating power, greater security of supply and shorter reaction times to changes due to a broader supplier base, etc. A good supplier structure has a value-enhancing effect on the company.
  • Level of trade margin: Most wholesale companies aim for a trade margin in the range of 15-30%. Industries with specialized or high-priced products can achieve higher margins, while highly competitive or price-sensitive markets have lower margins. It is important that you as a wholesaler regularly review your trade margins and optimize them through efficient operations, good supplier relationships, and smart pricing strategies, thereby increasing the value of your company.
  • Optimal inventory turnover rate: The inventory turnover rate varies greatly in wholesale depending on the industry, product type, and business model. It has a direct and significant impact on various aspects of the wholesale business, including liquidity, cost structure, efficiency, competitiveness, and financial indicators. A higher turnover rate improves operational processes, reduces costs, and increases profitability, which ultimately increases the overall value of the company.
  • Share of private labels: The percentage share of private labels has a significant impact on the value of a wholesale company and can substantially increase it. Private label products can differentiate the product range and set the company apart from competitors. They are not dependent on others, can be more innovative as desired and needed, develop new products or adapt existing ones, and generally respond more quickly to market changes. A successful private label increases customer loyalty, as customers tend to become attached to products and brands they perceive as high-quality and reasonably priced. Private label products usually offer higher profit margins than branded products, as production and distribution processes can be better controlled, thus reducing costs.
  • Exclusive distribution rights to the products: Exclusivity agreements allow you to achieve higher margins, as you occupy a special market position as the sole source for certain products. Your negotiating position vis-à-vis retailers who want to sell the exclusive products is strong. New competitors find it harder to enter the market, as the most attractive products are sold exclusively through you. Companies with exclusive distribution rights offer a high level of earnings security and are valued more highly. A possible danger lies in the dependence on a few suppliers. If these agreements end or suppliers change the terms, this can have negative consequences.

Nimbo Company Valuation for Wholesale

The Nimbo Company Valuation considers not only figures such as turnover and profit but also the value drivers mentioned above. Free version available!