You know that spending less on business expenses like supplies and inventory can help you maximize your business’s profits. You can’t just eliminate those expenses; otherwise, you wouldn’t have anything to sell. But, you can possibly reduce how much you spend through wholesale buying.
Wholesalers supply businesses with products in large quantities. Businesses that buy products in bulk often shop wholesale. You can get both wholesale business supplies and inventory to resell.
Because wholesalers normally only distribute large bundles of products, it can be difficult for small businesses to get deals from wholesalers. But, buying wholesale for small business is possible.
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Small business bulk buying
To help you start buying wholesale items, read below about types of wholesalers and how to find them, and wholesale pricing.
Types of wholesalers
There are many types of wholesale vendors.
Manufacturers
Manufacturers make the products. They normally send the products to wholesalers, who distribute to retailers. But for some niche products, you might be able to get them directly from the manufacturer.
Exclusive distributors
Exclusive distributors have the sole rights from the manufacturer to distribute the product. Exclusive distributors might sell products to retailers, or they might divide them among smaller wholesalers.
Wholesalers or regional distributors
Wholesalers or regional distributors get products from manufacturers or exclusive distributors. These wholesale businesses then break up the products into smaller groups to sell to retailers.
Jobbers or brokers
Jobbers or brokers are small wholesalers. They typically have a small amount of supply and work with small, local retailers.
Picking a wholesaler
When you start your business, you will likely need smaller orders. Try to buy further down the chain to get those smaller orders.
Every time a product passes hands, the price goes up. The further down the chain that you buy your products, the more expensive they will be. You will either need to increase how much you charge customers or lose profits.
How to find wholesalers for your business
Finding the right small business wholesale suppliers can take a lot of time and trial and error. But, finding the best fit can be worthwhile in the long run.
Here’s how to find wholesalers:
- Attend trade shows for your market. Wholesalers sometimes set up display booths. This is a great way to meet representatives and possibly see products in person.
- Subscribe to industry magazines. Wholesalers may place ads in the publications.
- Talk to the manufacturer. It might be able to directly sell products to you. If you can’t get the products from the manufacturer, ask for a list of its distributors.
- Use the internet to search for wholesalers. You can do searches for your product by name and model number. You might include words like “wholesaler” or “distributor” in your search.
- Talk to others in your industry. Those who aren’t direct competitors might be willing to share their wholesale sources.
Things to consider when choosing a wholesaler
You shouldn’t simply pick the first wholesaler you find. You should shop around and find the best source for your business.
Here are things you should consider when looking for a wholesaler:
- Price: Find out how much the wholesaler will charge you for the amount of product you need. Learn about any potential discounts.
- Location: Finding a nearby wholesaler may have benefits. They might be able to reduce shipping costs and speed up shipping time.
- Shipping options and costs: You should learn how the wholesaler will ship the products to you. Also, find out how much shipping will cost.
- Stability: Small wholesalers might not be as stable as larger wholesalers. Small wholesalers might run out of stock, putting your business in trouble.
- Customer service: The wholesaler should have good customer service and be willing to work with you. It shouldn’t be difficult to get ahold of.
Entering into a wholesale agreement
When you buy wholesale, you usually must sign a wholesale agreement. It is important to understand the terms of your wholesale purchases. You may want a lawyer to look over the contract before you sign it.
The following items might appear in your wholesale agreement:
- Minimum order sizes: The wholesaler might list the minimum amount of product you must purchase in each order. If the minimum order size is much larger than you need, be careful. You might get stuck with inventory you cannot move.
- Discounts: You might be able to save money if you order larger quantities of products. The wholesale agreement might include a discount schedule telling you when certain discounts begin.
- Delivery schedules: The agreement might tell you how soon the wholesaler will have a delivery ready for you. It might also tell you how the products will be delivered and by when.
- Return policies: You don’t want to get stuck with a large order of goods you’re unhappy with. Check the agreement for a return policy.
Wholesale pricing
Individually sold retail products are sold for more money than the per item price of wholesale products. When buying wholesale for small business, you do not pay the market price. Instead, you pay a lower wholesale price because you are buying in bulk.
A product can have different wholesale prices between two buyers. For example, one store owner who purchases 10,000 pairs of shoes will pay a lower price per pair than another store owner who buys only 1,000 pairs of the same shoes.
Usually, the more goods you buy, the lower the price per unit will be.
Let’s say a hair salon owner is offered a 10% discount if he buys 50 bottles of shampoo. But, if he buys 100 bottles of shampoo, he is offered a 20% discount. The more bottles the salon owner buys, the bigger the discount he receives.
Sales tax
Wholesale for business owners offers another great perk: you do not have to remit sales tax on items you’ll resell if you show the wholesaler a resale certificate. Resale certificates are used to purchase goods that you will resell or will be a part of something you sell. This form proves you are not buying wholesale goods for personal use. If you do not show a resale certificate to the wholesaler, you will pay a sales tax. Each state has its own resale certificate. Check with your state for more information.
Recording wholesale purchases in your accounting books
When you make a purchase, you must record the expense in your accounting books. You can record your expenses for wholesale items in the same way you would record any other purchases.
If you buy inventory or other business supplies, you need to record your purchases in your accounting books. When you use accounting software, you can easily make entries and see how much money your business has. Get your free trial of Patriot’s online small business accounting software!
This article is updated from its original publication date of November 10, 2015.
This is not intended as legal advice; for more information, please click here.