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Distributorship and dealership are in essence a license to distribute a product. Both dealers and distributors work with a manufacturer to get its goods to the buyer. Both dealers and distributors have a continuing relationship with the licensor of the product, but do not need to incorporate the entire business plan of the licensor into their own business. A dealer differs from a distributor in that a dealer will only sell to a retailer or a consumer, while a distributor can sell to a number of dealers or to the general public.

Dealerships and distributorships are known as product franchises. The term “franchise” refers to a variety of business opportunities in which the owner of a product, process, service, system, or name gives permission to a second party to use it in exchange for payment. While the majority of dealer/distributorship opportunities are legitimate ventures, there are some unscrupulous individuals and businesses that prey on prospective franchises with the promise of fast money. In addition, franchises are always successful.

Prior to engaging in a dealership or distributorship, it is crucial that a businessperson determine whether the business is a legitimate business opportunity venture. The basis for the relationship is the fact that the dealer /distributor must distribute or sell goods/services supplied by the manufacturing company. In order to do this, the manufacturing company must assist the dealer/distributor in finding a retail outlet or accounts for the products/services.

Prior to or within six months of beginning the business venture, there must be cash transaction between the dealer/distributor and the company. All details of the contract and conditions of the relationship between the dealer/ distributor and the company must be in writing and in the hands of the prospective dealer/distributor at least ten days before he/she purchases the business or signs a contract.

The contract should contain a detailed description of the dealership/distributorship offering, including the purchase agreement as well as three years of audited financial statements. It may also include information on the business backgrounds of the franchise operators and disclose any litigation, bankruptcies, or security law violations the operators or managers engaged in over the previous ten years. The document should be reviewed in concert with your legal counsel as well as your accountant.

Securing a Dealership/Distributorship

In order to determine which business opportunity or franchise to invest in, it is important to do a careful research. While the advantage of investing in a business opportunity or franchise is that it can be a “turnkey operation,” it is crucial to plan and investigate the investment even more thoroughly than with a traditional entrepreneurial effort.

Begin with the assessment of your own skills and goals for the business. Keep these in mind while reviewing franchise opportunities. Start with a thorough reading of the business disclosure statement. If the franchise business does not have one, ask why and be concerned about the dependability of the business.

Get copies of the company’s financial records, as well as details in writing about what exactly is being offered for the purchase price, including training and support. Find out what other distributors exist and, if possible, talk to them about the success of their franchise, the quality of the product/service, and the support of the franchiser. Test the potential of the product/service with family and friends. Ask yourself. “Would I purchase this product?”

Another factor in securing a dealer/distributor business is the large initial investment. There are normally two types of fees associated with franchises and business opportunities: the original start-up fee or purchase price, and ongoing fees or product costs. The purchase price may depend on whether the businessperson is investing in a “turnkey” operation, such as a car dealership, or a less complete franchise. Prospective franchisees should not be afraid to negotiate the purchase price and terms of the business opportunity.

A franchise territory can be exclusive or non-exclusive. There are pros and cons to each type of territory, but be sure you are aware of the status of your prospective business and determine whether you can work in this environment. It should be noted that both distribution and dealership agreements tend to have a shorter term than a traditional franchise agreement, Distribution and dealership agreements frequently are renewed on an annual basis, by mutual agreement. A traditional franchise agreement normally covers a minimum of five years.


Benefits of Dealerships and Distributorships

There are differences in operating a distributorship and dealership. A distributorship normally costs more than a dealership and requires leadership capability and a better knowledge of basic business skills. It will most likely have a larger territory than a dealership and may even extend to more than one location.

A dealership tends to be local and requires less start-up capital. A dealer can focus his/her efforts on the management and success of one location. As a dealer, you work closely with a distributor, so it pays to nurture that relationship as well. In the end analysis, the distributorship can be more lucrative, but with more effort and investment put into it.

The benefits of being a dealer or a distributor are many. A franchise is normally able to secure a lower price on goods, giving them greater buying power, than an independent seller would be able to get. Frequently, a dealership or distributor handles a specific territory, with exclusive rights to sell the brand in that area. Competition for sales of the dealer/ distributor’s brands, therefore, is non-existent with sales territories.

Dealerships especially are known for their advertising programs. By joining together in a cooperative manner to purchase airtime and produce television and radio advertisements, they are able to secure a presence that an independent business could not beat. Most franchisers also provide their dealers or distributors with point-of-sale materials. Sometimes they may offer the benefits of credit card program and a national warranty as well.

Bernard Taiwo

I am Management strategist, Editor and Publisher.

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Sat Dec 5 , 2020
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