How to start a distribution business

Setting up a new distribution business requires a number of core skills, including adaptability and being able to analyse and predict the market. If you're clear on what you need to know and you plan well, your business will be on the right path to long-term success.

Read on and learn the step-by-step process of how to start a distribution business.

The key skills and knowledge you'll need to start a distribution business

The business of distribution is a competitive field that requires you to have a nose for sniffing out the next "hot" item in your niche. You will need negotiation skills to establish relationships with sellers and compete on customer service. You will rely a lot on your "people skills", hence having a background in sales can be beneficial.

To operate a business smoothly, you should have adequate financial and business skills. Your business will require regular monitoring of cash flow. This includes being aware of every cent made and spent, establishing a competitive credit policy, scheduling bills payment and careful handling of receivables.

Even if you have the budget to hire employees, it is generally a good idea to be in the loop of operations behind the scenes: warehouse setup and organisation, shipping, receiving, customer service and more.

Establish firm payment terms and credit limits, be straightforward and diligent in explaining your terms, checking credit references for new customers, reviewing your customers' accounts on regularly and adhering to your terms and conditions.

In a thriving market, the need for online distributors has increased in several sectors. E-commerce provides customers with the simplicity and ease of browsing products. When setting up your e-commerce business, establish secure transactions and a digital trail to drive your business sales. Read more about e-commerce for merchants.

Before operating your business and drawing up agreements, you must be familiar with The Franchising Code of Conduct, Competition and Consumer Act and the Australian Consumer Law.

Courses and qualifications

Without a background in sales and business, you might feel like a fish out of water. If you have the means, you can remedy this by enrolling in a course. Generally, a degree in Bachelor of Business (Logistics and Supply Chain Management) is for three to four years. It may cost an average of $34,000. You may also need to complete an internship as part of your degree. If you're looking for a short course or certificate, your options include:

Logistics Certificate

A logistics certificate from training.com.au could help start your distribution business.

Get started

Equipment and software needed

The equipment you will need depends on your business niche. The essential equipment to get started include:

For a streamlined operation, you may want to consider purchasing software for inventory control, shipping and receiving, accounting, client management and barcoding.

Decide how you will structure your business

The first step to starting your distribution business is deciding your business structure. Each business structure has its advantages and disadvantages regarding tax obligations and personal liability.

A sole trader business is probably the easiest and least expensive choice. You are the owner; you manage daily operations and are responsible for any business debts. A partnership involves two or more people sharing in decision making. Both are responsible for the financial liabilities of the business.

If you foresee your business expanding in the future, you can always change your structure to a company at a later stage. A company includes limited personal liability and possible tax deductions.

The key legal documents to get in place

Some of the legal documents you'll typically need to have in place include:

• Distribution agreement. This agreement sets out the terms and conditions between a supplier of a product and a distributor. It is also necessary if you want to purchase products from overseas to sell in your country. Be aware of your government's laws on distribution of overseas products.
• Order Sheet Form. This form collects the details of your orders. It should include key information on the supplier and the distributor. This may include company logos and company information, the date of order, buyer information, store name, purchase order number, delivery address, billing address, shipping date, resale or tax ID number, payment method, invoice total, order notes and buyer signature. You should also include information on the product such as item number, product name, the wholesale price of each item, quantity ordered and the available variants (size, colour, fragrance, flavour and more).
• Employment contract. If you choose to hire employees, you will need an employment contract which states the employee's daily responsibilities, their salary and working hours.

Get in touch with online legal services for advice. Analyse the terms and conditions in your legal documents to make sure the contracts are easily understood and cover all legal aspects.

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What should I charge my customers?

Distributors have to account for the cost to transport goods, international tariffs, vehicle maintenance, employee wages, marketing, applicable taxes and warehouse storage. Consider the manufacturer suggested retail price and the product competition in your nearby market. Then estimate how many of each product you will stock each month – account for seasonal variations and holidays.

You may want to consider hiring a statistician or an accountant who can do the statistical analysis for you. Once you arrive at an estimate, compare it with the price that your competitors are charging. Taking into account the fixed elements of your business and the overhead costs: does the estimate help you to exceed the break-even point, so that you can achieve the combined revenues you need to hit?

Continuously monitor your markup prices and how they sell. Anything that doesn't sell well needs to be either reduced price or marketed more. Configure Price Quotes (CPQ) software can help reduce the time spent on preparing quotes. The software you choose should take into account the challenges your business might face.

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Building your customer base

Every salesperson knows that it is not about what you sell but how you sell it. As you will be competing with various distributors, show your customers what makes your services superior and its cost-saving efficiencies.

It is likely that you'll need to continuously adapt to the changes in the market by catering to emergency needs, capturing share in shifting demands, finding new customers and providing business value regularly.

Integrate value-adding services to boost business growth and improve sales opportunities. Some examples are premiums and incentives, graphics and printing, merchandise programs, attractive and secure packaging, direct mail or newsletters and event management. Be strategic in your approach and make use of available technology to earn loyal customers.

Suppose you are planning to sell your products online. In that case, you can build a website on Squarespace, Shopify, BigCommerce or Square E-commerce.

Questions you might still have

What are the main avenues for a distribution business?

You can choose to buy an existing business, start from scratch or buy into a business opportunity. Before purchasing an existing business, you should research the business you're buying. You may also have the chance to inherit the client list of the business.

Starting a business from scratch requires building your reputation, which means lots of sales and marketing. Buying a business opportunity may be considered high-risk, but finding the right opportunity with a profitable and reputable business can lead to handy support, training and quick success.

How can I manage stock if I don't have a warehouse?

Dropshipping affords you a greater range of products without having to invest in storage. Dropshipping is when you, as the distributor, ship products directly from manufacturers or wholesalers to the customer (read more in our clear guide). You could advertise the products with sample items in-store or via website ads. When a customer pays for their item, you typically forward the order details, manually or automatically, to the wholesaler who then charges you for the product and ships the product directly to the customer.