Buying an industrial supply distributor in Florida

Industrial distributors buy from manufacturers and resell to businesses: maintenance and repair supplies, bearings and power transmission parts, pumps and valves, hydraulics, fasteners, welding gear, safety products, HVAC and plumbing supplies, electrical parts and building materials. Some also repair what they sell, rent out equipment, or assemble hoses and fittings to order.

Customers are contractors, factories, utilities, local governments, marinas, farms and maintenance departments. They usually buy on account, often weekly, and stay with a supplier that has the part in stock, delivers fast and knows their equipment. Most sales are repeat orders, so revenue is fairly steady, though it follows construction and industry.

Much of the value rests on supplier lines, the agreements that make the business an authorized distributor for certain brands in a territory. A small distributor usually has counter and phone salespeople, outside salespeople who visit customers, warehouse staff, delivery drivers and sometimes service technicians.

• Authorized supplier lines in writing, with territories and terms that can survive a change of owner.
• Many customers, none a large share of sales.
• Margins (what's left after the cost of goods) that hold up, set by a pricing system, not each salesperson's gut.
• Inventory that sells regularly, with little dead stock on the shelves.
• Salespeople with long customer relationships who are likely to stay, paid to reward profit, not just sales.
• An inventory and accounting system that tracks costs, stock levels and what each customer buys.
• Services that keep customers loyal: repairs, assembly, or managing stock at the customer's site.

Florida doesn't license general industrial distributors; expect a local business tax receipt. The main state requirement is sales tax: register with the Department of Revenue, collect tax on taxable sales, and keep resale or exemption certificates from customers who don't pay it.

Buying more than half of a business, its assets or its stock of goods can make you liable for the seller's unpaid state taxes (up to the greater of the price or its value) unless the Department of Revenue issues a certificate of compliance (section 213.758).

Some products carry their own rules. Under EPA rules, most refrigerants may be sold only to certified technicians or businesses that employ one, and the seller keeps invoices and proof of certification for three years (40 CFR 82.154). Selling restricted-use pesticides takes a dealer license from the Florida Department of Agriculture and Consumer Services, which a new owner must get before the transfer (section 487.048). Hazardous materials have their own shipping rules.

Trucks of 10,001 pounds or more that cross state lines need a USDOT number. Trucks used only in Florida must follow federal safety rules at 26,001 pounds or more, or when carrying hazardous materials that require placards (section 316.302).

• Supplier agreements: length, how they can be ended, territory, and whether a new owner needs the supplier's consent. Losing a major line can cost a large share of sales.
• Inventory: a physical count, how long items have sat, and how slow-selling stock is valued in the price.
• Sales and margin by customer, and how much rides on the biggest few.
• Overdue customer bills and bad debts; contractors can be slow payers.
• Supplier rebates and incentives, and whether they depend on volumes the business may not keep.
• Sales tax filings and exemption certificates. Missing certificates can become tax bills after an audit.
• The warehouse lease, and the condition of trucks, forklifts and racks.

• Which supplier lines matter most, and have you told them you might sell?
• Who are your biggest customers, and who looks after each one?
• How much stock hasn't sold in a year?
• How much of your profit comes from supplier rebates?
• What do customers buy from you that they can't get quickly elsewhere?
• Which salespeople would customers follow if they left?
• How has online competition affected you?