If you’ve ever wondered, how to start a distribution business? Then this post is for you!
A distribution business is the middle-man between a manufacturer (those who make the products) and the retailers (those who sell the products). They purchase products from the manufacturer at bulk price and then sell them onto the retailers for a profit.
Starting a business is always exciting. But, you must ensure you meet all the administrative, financial and legal requirements to succeed in regard to how to become a distributor in Australia. Read along to find out everything you need to know to get your start.
What is a Distribution Business?
A distribution business involves a ‘distributor’, who buys the products and resells them in their own right for their own profit. So, when determining how to be a distributor in Australia, it is important to understand how you will operate your business.
Getting Started: The Pre-Planning Steps
Research the Industry
There will always be a market for wholesale products. However, the industry as it relates to the products you sell may change this is why its important to research what products you want to deal with.
It is also important to consider how your distribution business relates to warehousing businesses and understand how you can make the most of the cross-over.
When assessing the market for the products you’re going to be selling, firstly consider your barriers to entry. Are there other distributors in this field which dominate the market? If there are, you may want to think about how you’ll stand out from them through things such as having lower prices or higher quality products.
How will you store inventory?
Depending on your business model, you will need a warehouse for your stock. Although many businesses lease out these kinds of properties, you may also want to purchase it.
Furthermore, you will need to have a distribution network such as either partnering with a courier company or having your own truck for deliveries. This will all depend on how much capital you have available.
Developing a Distribution Business Plan
Excellent planning will often lead to success when dealing with how to be a distributor in Australia. Using your research, you should develop a formal business plan to guide your business. This might include your:
- Business objectives and goals
- Business structure
- Target market
- Competition
- Marketing strategy
You can always seek assistance from a professional accountant or business lawyer to assist you with this, if you aren’t confident in developing a business plan yourself. It’s important to revisit and review your business plan regularly.
Business Name
Now you need to decide on a business name. Once you decide on your name, you can check the availability of the business name you have chosen.
If the name is available, you can then register your business as a trademark to ensure that you have the exclusive rights to your business name throughout Australia.
Deciding on a Business Structure
You will need to decide on a business structure to establish your business plan. Consider whether you will operate as one of the following.
- A sole trader is someone who owns and operates a business under their personal name.
- A partnership is when two or more people come together to form a business.
- A company is when you register your business as a separate entity from your personal affairs.
You should contemplate which structure will work best for your business goals. It is important to know what the legal ramifications are of each structure and how they can affect how you operate.
In addition to this it is important to consider the two ways in which a distributor may profit. They may either buy the products from the manufacturer and sell it directly to the consumers (retail distributor) or they can be a merchant that buys products from manufacturers and sells them to retailers.
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Registering your Business
You need to register for a few things in order to make your business official. For instance:
- A business name
- An Australian Business Number (ABN) to help the Australian Tax Office (ATO) and customers identify your business.
- It would be good practice to also register your business as a company (ACN) so you can benefit from limited liability.
- Register your Tax requirements.
- Ensure that all relevant licences or permits are valid.
Source Insurance
A business should always have insurance in case anything unexpected happens. Determining which policy is right for you depends on your business model. Additionally, you should consider whether you’ll operate out of a store or a warehouse. Public liability insurance with our partner such as BizCover can help you protect your property and your employees from damage or injury.
It would be best practice to obtain public liability insurance, this will be beneficial for customer and staff injuries as well as any damages to your customers properties. Additionally, you will need a form of coverage for all your equipment to protect against loss, damage or theft.
Hiring Employees
To run and expand your business smoothly you may want to consider hiring staff. You should consider how many employees you are looking to hire and what type of employment they will receive such as full time, part time or casual.
You will then need the appropriate employment agreements drawn up and signed.
Market Your Distribution Business
Now all you need are people or businesses to distribute to. A strong strategic marketing plan will allow you to consider the most effective advertising method to reach your target market.
You may decide to start a social media page or put an advertisement in your local newspaper. Another simple and effective approach of reaching new customers is through word of mouth.
Having an online presence is important even for construction companies. Using websites like Shopify or GoDaddy can help you create a well-established business so that your customers can easily find you.
Additionally, you should set up and maintain a website which means you need to consider any website terms and conditions to ensure that your customers are safe.
Learn More about how to market your distribution business in this Webinar!
Considering the Law
Within the retail and wholesale trade injury, there are a variety of regulations that you need to adhere to. Relevant legislation that you should consult include:
- Competition and Consumer Act 2010,
- Australian Consumer Law (ACL),
- Commerce (Trade Descriptions) Regulation 2016
- National trade measurement legislation
- Anti-Money Laundering and Counter-Terrorism Financing Act 2006
- Greenhouse and Energy Minimum Standards (GEMS)
There are various licenses that you may need depending on your type of business and what you are distributing. There are specific licenses that relate to the following industries.
- preparing and/or selling food
- selling and distributing alcohol
- selling tobacco products
- disposal of waste
- handling, storage and use of chemicals or dangerous substances
Lastly, if you are dealing with dangerous chemicals. These can be in soaps, paint, cosmetics, glue and cleaning products. You should consult the Australian Industrial Chemicals Scheme to understand your responsibilities.
Distribution Agreements
When operating a distribution business, it is important to consider what a distribution agreement is. This is a contract in which the supplier grants the distributor the right to distribute the supplier’s good or services to customers.
This allows for the distributor to sell an in-demand product, with the supplier benefitting from wider customer exposure.
Distribution agreements should outline the terms of the relationship between the supplier and the distributor.
Other Legal Documents you will need
To get up and running, you should consider these legal documents so that you can protect your business. Some documents you should consider include:
- A Services Agreement can outline the service you provide so that your customers can know what to expect.
- A Employment Agreement can outline your employee’s responsibilities and their obligations to your business.
- A Sub-Contractor Agreement can be useful if you need to employ another business or sole-trader when operating your business.
How Lawpath Can Help
At Lawpath, we can help guide you through starting your own distribution business. One of our Experienced Lawyers can provide you with all the legal information and requirements necessary for your distributor business to succeed.
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