Expert: Eric Hofer - 8/4/2008

Question
QUESTION: Eric,
We all appreciate your expertise and willingness to help out.  I'm planning to start a manufacturer's agency distributing non-alcoholic or alcoholic beverages.  The goal would be to evolve into a distribution firm after success is realized and a network of contacts formed.  My background is sales in finance.  Any recommendations for first steps to incorporate into the business plan?  The first challenge is which product line/suppliers to work with, ideas?

Thank you,
Luke

ANSWER: Hello Luke,

I'm unsure what you mean by a "manufacturer's agency".

If you are talking about setting up a distributor, then this is something about which I can write.

First steps:-
- determine the scope of the business (market, competition, resources & costs)
- identify the market opportunities that present themselves to you for your target geography
- determine funding available, requirements for that funding
- identify knowledgeable resources on whom you could leverage their talent to get things going
- consider alternative ways to get into the business & gain knowledge
 .. work with an established company
 .. poach disgruntled / ready to jump key employees (who cannot get to the next rung for example)
- plan out your first X months of operating (cash flow)
 .. what will be your outgoings,
 .. forecast your sales incoming
 .. determine turnover, etc.
- plan out your basic "operating" flow - eg. order comes in, we deliver

Questions you'll have:-
- who is going to develop the relationships with the suppliers
- how are you going to drive order taking -
 .. are you going to support the mfg to get orders
 .. are you supplying your own sales force

Give me your thoughts and we can go further - this is the sort of stuff that my company consults upon and for which it supplies back office systems.

Eric

---------- FOLLOW-UP ----------

QUESTION: Thank you for the insightful feedback.  Yes, our company will serve as a distributor, yet we do not have the initial capital to hold inventory, therefore we plan to begin as brokers for the manufacturer.  We believe our best strength is fostering relationships with suppliers and we would be serving as the sales force.  The biggest questions we are trying to answer now is 1.) what product to distribute (we have good contacts in both beverage and real estate)  2.) how to bridge the income gap from leaving our current sales jobs to earning profits from our new company.  
All the best,
Luke

Answer
A "selling" organization would be your best bet...

Effectively you'll develop contacts and drive sales that are handed over to a distributor who supplies the capital, delivers, etc. and you'd take a percentage of the turnover.  This has to be the cheapest solution.

The products depend upon the contact base you think you can develop; competition in the market, and strength (or weaknesses) of the distributor(s) and manufacturer(s) with whom you intend to team up.

Real estate is outside of my expertise.

As to bridging the income gap:-
- one you're going to get the distributor and/or manufacturer to cover the bulk of the capital costs
- I've seen the following - one continues to do the 1st job, selling to the same customer for the 2nd product...  This should be cleared with your current employer as the repercussions when exposed can be disasterous.
- make use of free resources (eg. wife, brother, sister, etc.) who can handle back office tasks.

But in truth, getting started with minimal capital is a challenge.  'If it were easy to do, everybody'd be doin it.'

Good luck,
Eric