The manufacturing industry has increasingly become a preferred option for anyone considering expanding their business acquisition portfolio. The demand for manufacturers continues to rise as many companies are in-sourcing more of their operations. However, the major challenge for most investors is assessing a manufacturing business’s true value. Herein are tips any investor should consider if you’re looking to buy a manufacturing business.
Assessing value of a manufacturing firm
One of the pitfalls any investor should avoid is overpaying for an acquisition. They should also ensure a company they intend to buy will retain its value. The related due diligence involves comprehending an organization’s past, present, and future.
Evaluating a business’s past focus on information related to the existence length and the growth. The “present” aspect of a potential acquisition’s due diligence focuses on its current customers, projects, and financial performances. Evaluating a firm’s future is complex. It entails understanding the sales pipeline, workforce, and industry outlook relating to change.
Understanding Organizational Finances
When evaluating a potential manufacturing business acquisition, an investor should diligently analyze as many loss and profits statements as possible. Such information will enable them to know when the business has experienced the most significant expenses and income growths. Financial statements evaluation enhances the comprehension of a business’s profitability and its history to enable predicting future performances.
The customer base is a vital determinant of its revenue stream diversity. Thus, an acquirer should understand the company’s target market they intend to acquire. It often enhances the understanding of how much risk is associated with acquiring an existing business. For instance, a company with 70% of its sales from a single customer is risky because losing such a client would mean losing an equal percentage in revenue. After learning about the ownership switch, such customers might refuse to renew their contracts. Understanding risk in such a sense enhances a potential acquirer to understand whether the risk associated with the purchase matches the potential benefits. It might also help to negotiate for more favorable terms.
Product or Service Uniqueness
Often, the attractiveness of a business is directly proportional to the uniqueness of its offering. However, it is also essential for a purchaser to determine whether the manufacturer operates in a monopolistic market. The idea is that the more unique a business’s offering is, the less competition it faces. When assessing the uniqueness of the products or services offered by a manufacturer, the focus should be on whether its offerings are easily replicated or whether the firm owns any proprietary intellectual property. Competitors often capitalize on the imitation of products and the absence of proprietary intellectual property to acquire market share during ownership shift. Buying a manufacturer with a unique product who owns it’s own production and distribution rights should be prioritized.
A buyer should be familiar with the sector of the manufacturer they intend to acquire. Their focus should not be limited to demand growth and qualified personnel availability. Accessing a significant amount of contracts without personnel to meet the requirements leads to potential floundering of resources and overall bad customer service.
Primary Product or Service Outlook
The manufacturing industry is massive and has multiple segments. The notion that the industry is growing fast does not apply to all the segments. An acquirer should evaluate a business’s targeted vertical for growth. They need to compare the firm’s revenue to its direct competitors to do so. Direct substitutes to a business’s primary offerings should also be assessed. If substitute wants to make an organization’s primary offering obsolete, the buyer would be forced to spend significantly on revenue stream detainment and pivoting.
Using Business Brokers to Find Manufacturing Businesses for Sale
Using a business broker is a great way to locate your next manufacturing business. A business broker is an intermediary who helps buyers and sellers facilitate the sale of a business. Some business brokers work with businesses in a specific area or industry. So find one experienced in the category of business you’re interested in purchasing.
Business brokers can:
Help you figure out what you’re interested in. If you don’t even know where to start when it comes to buying a business, a broker can help you move in the right direction. A good broker will help you pinpoint your skills and interests and then connect you with businesses that might be a good fit. A business broker might even introduce you to an industry that you might not have thought to pursue.
Tell you which businesses to avoid. A good business broker will know which small businesses you shouldn’t buy. With some experience under their belts, brokers can help you steer clear of bad deals and failing businesses.
Help you negotiate. Once you find a small business available for sale that’s the perfect fit for you, you’ll enter a complicated negotiation process. A business broker can tell you what you need to consider and what you should be asking for in the negotiation.
A business broker is a great way to find an established business for sale, but you should make sure you’re working with a good one. Try to work with a broker who understands and represents your interests, not just the seller’s. Contact the business broker of your choice directly to find out if they’re working with any sellers with businesses relevant to your chosen categories.
At Integra Brokers, we have seasoned business brokers helping promote businesses for sale in Georgia and South Carolina. We offer professional expertise and reliable service for clients who are interested in buying and selling a business, mergers and acquisitions, business valuations, as well as advising on financial support services and related real estate services. For more information about how our about how we can help you buy a business, go here to read more or give us a call at 1 (888) 415-5118. Our office is ready to respond to any inquiries you have.