When considering how to sell a manufacturing business, there are many things to keep in mind before actually placing your manufacturing business for sale. Selling a business (especially in times of economic slump) comes with its challenges, some of which are common to all sorts of enterprises, while others are unique to manufacturing companies. Even though the manufacturing industry has begun to reclaim its bearings in the aftermath of the COVID-19 pandemic, it will continue to confront a slew of challenges posed by the ever-changing economic environment. Nonetheless, we at Integra Business Brokers have accumulated a wealth of knowledge and expertise in acquiring and selling businesses in a multitude of sectors over the years, and we have compiled a list of five fundamental considerations when selling a manufacturing business:
What Exactly Is Involved in A Business Valuation?
While it is critical to have a comprehensive and objective assessment of the value of your manufacturing business for myriad reasons, having a professional business appraisal is especially crucial when trying to sell your business. Because a valuation document is the most significant source of financial information on a company, it necessitates a comprehensive methodology. A competent valuation of your manufacturing company may encapsulate the following:
- Federal tax returns from the previous three years.
- Profit and Loss Statements (P&L) from the previous three years, including balance sheets.
- An interim profit and Loss Statement (P&L) comprised of a balance sheet and a year-to-date comparison for the same period in the preceding year.
- Inventory of saleable items on hand at any period of the year.
- Copy of real estate tax bill (if real estate is to be included in the sale).
- Copy of any real estate evaluation that is accessible.
- Equipment List
- Lease information
How Do You Maximize a Manufacturing Business Valuation?
As a top business, we have sold more than 300 companies over the past two decades; consequently, we have seen what variables are likely to boost or diminish the value of a business. The incredible thing is this: in addition to the apparent values entered into conventional market multiples; you can use practical strategies to enhance your manufacturing company’s value. These strategies include:
Staff Training and “Upskilling.” Most purchasers desire a “well-oiled engine.” A well-run manufacturing business has a well-trained workforce. Trained employees inform buyers that your company is reputable and structured, and this demands a foundation of comprehensive and consistent training. It is never too late to start if you do not currently have a systematic employee training program in place. Additionally, does your engineering personnel comprise employees with additional technology skills (for instrance, in software and IoT) compared to exclusively mechanical and electrical engineers? Depending on your timeline, “upskilling” current staff may be worthwhile. In a 2019 industry poll, 77% of workers stated they are enthusiastic about learning today or retraining to increase their future employability, elucidating that employees are willing to improve their competencies if provided with opportunities.
Growth Plans. It may seem counterintuitive to discuss growth plans when selling a manufacturing company. However, it is critical to consider that substantial profits equate to better value. If you can prove a constant profit growth and an operating model that predicts future growth, buyers will want to buy your business. That implies now is the time to sit and create growth strategies. Particularly, avoid the tendency to “hunker down” in the manufacturing industry and instead focus on improving efficiency, launching new products and services, and expanding into new markets. Consider how you can expand your business. Think about how you can build your business, start taking measures to make it happen, and get your plans in writing. This will be the tangible evidence of your expansion goals and will aid in negotiating with possible purchasers.
What is Driving Your Decision Sell Your Manufacturing Company?
Selling a business can be done for a variety of reasons. Having in-depth insights into why you are selling the company will help inform the strategy you adopt. Some of the main factors that drive people to sell their businesses encapsulate:
Retirement. You have realized that it is time to hang up your boots. Perhaps it will be a family succession, you want to allow an employee to buy the business, or you are dissolving a business partnership. Whatever the reason, you need to work with an experienced partner to ensure a smooth transition, maintain business continuity, and safeguard your business legacy and prestige.
Opportunity. You want to capitalize on another investment option, but you are not ready to retire from the manufacturing business. While you are still devoted to the progress of your manufacturing company, you would like to be free yourself and invest in another business or project. A private equity firm or another strategic buyer may be interested in this situation. In this case, you maintain income and benefits, likely even a minority stake in the company, but reduce exposure and gain financial security.
Liquidation of assets. You have encountered a set of circumstances that necessitate an immediate cash infusion. Your exit strategy is not ready, but you still need to liquidate. Once again, finding a strategic buyer opens up a wide variety of possibilities. If you can keep your benefits and get a small stake in the company simultaneously, that is ideal. This provides you with long-term financial stability, as well as opportunities for growth and development.
Which Time Is the Best for Selling a Manufacturing Company?
You should sell your manufacturing company while it is performing at high levels. Even though it may seem paradoxical, this is true for any business. If your manufacturing firm is doing well, it is reasonable to presume that you may get even more for your business if you delay the sale. Unfortunately, we have seen this strategy in action; most of the time, it leads to much anguish and disappointment to sellers. These owners encountered various challenges, including a drastic shift in their health, the loss of a key client, or an unpleasant swing in the economy, among other unexpected events that devalued their businesses and reduced their sale proceeds.
We understand the pain and frustration of a situation like this, specifically after years of hard work and dedication to the business. Thus, a thorough and confidential professional business appraisal is required to ascertain the optimal time to sell a company. While we have been constantly reminded that we cannot control the future in the last two years, we must rely on what we do know. Your manufacturing company’s financials are the strongest predictor of future developments of your business. You do not want to look back and regret and wish you had taken action sooner; time is of the essence.
To sell a manufacturing business, who should I contact?
Understanding your company’s finances and operations allows you to ascertain where you are excelling and where you may have to strengthen. From the preceding, it is ostensible that selling a manufacturing company begins with a comprehensive, professional business valuation. For myriad factors collaborating with an experienced company broker or advisor provides you with an extensive network of potential purchasers at their disposal. That is where Integra Business Brokers comes in; we put our clients at the forefront and guarantee the most successful transitions and lucrative exits for our clients’ sakes. Our consultants have nearly nine decades of collective experience in the acquisition and sale of businesses. Our completion rate is far higher than the industry average, and the companies we represent sell for an average of 90% of their asking price or more.
In order to achieve your goals, Integra Business Brokers can assist you in gaining a better understanding of the selling process for the manufacturing business and the current state of your company. To learn more about selling a manufacturing company, contact us today. When you are ready, we are here.