Getting Your Food Processing Business Ready for Sale
These 4 steps can help increase the value of your Food Manufacturing Business.
American Manufacturing is not only one of the biggest industries within the United States economy, but also one of the most profitable and largest markets in the entire world. The U.S. Manufacturing sector is the 2nd largest in the world and in 2012, was responsible for over $1,966,495,000,000 dollars in industry output. According to the Manufacturing Institute, if the U.S. Manufacturing sector were its own country, it would rank 10th largest in our global economy! That being said, the manufacturing sector is enormous and covers dozens of smaller industries, ranging from automobiles to plastics to cosmetics. Almost everything we use comes from a manufacturing business, and while we may envision a massive plant, 94% of all manufacturing businesses in the United States have fewer than 100 employees, classifying them as small businesses.
We rely heavily on the mass production of food to sustain our ever-growing population, and as our society places a higher value on green technology and healthier, natural food, the food manufacturing industry strives to meet these demands. Of the top 12 industries contributing most to our GDP, food manufacturing and processing is among them. The average profit margins for food manufacturing can be as high as 50% and the industry as a whole is expecting at least 3% in growth for 2015. If you own a company in the food manufacturing sector, the industry outlook paints a very bright picture for your future and if you have been thinking about planning your exit strategy, this might be the best time to do it. The first step in selling a business is finding out how much your business is worth, and to give you an idea of what goes into calculating the worth of a business, we have listed some formulas below. Keep in mind, that only a professional broker can tell you the true value of your business after examining financials, and formulas may vary.
- 2 – 6x EBITDA
Now that you have an idea of what goes into valuing a food manufacturing business, you probably want to know what you can do to ensure your business ranks on the higher end of that multiple. Our experienced brokers have compiled some steps that owners of food processing businesses can take now so that when you are ready to sell, your business not only pulls a higher listing price, but buyers will be more attracted to your business as well.
Green Packaging
Over the past 20 years, America has taken great strides to preserve our planet, but there is still much to be done. People are becoming more environmentally aware and are actively making purchasing choices that support green initiatives. Researchers have discovered that in 2014, there was a 78% increase in sales for new beverage products with green packaging. While sustainability was once an option for food processors, it is now a must to stay competitive in the industry.
As a business owner, this gives you a wonderful opportunity that will not only increase your revenues but will also appeal to buyers when you decide to sell your business. Packaging is the only advertisement that 100% of your consumers see; having a earth-friendly seal on your packaging can do wonders for your company. We recommend partnering with third party packaging companies that are skilled in designing aesthetically pleasing packaging. Some companies can even convey exactly how your packaging helps the environment; such as how many trees were saved or how much less space in a landfill was used. Green packaging is one way your business can catch the eye of the environmentally-conscious consumer, and ultimately, bring in additional revenue to your bottom line and impress buyers with your concern and implementation of conservation initiatives.
Food Certifications
Much like green packaging, our society places a higher value on healthy, natural food. Americans are starting to prefer certified humane products, such as cage-free eggs or fair-trade coffee, and currently, the top two certifications are gluten-free and organic. While only about 1% of the population suffers from sensitivity to gluten, 30% of Americans are choosing to avoid it and product sales are expected to reach $6.6 billion by 2017. Having at least on gluten-free option in your arsenal could open your business up to a whole new market. Consumers are also gravitating towards organic foods, which saw a sales increase of almost 11% last year. As a food manufacturer, you do not need to rearrange your entire supply chain to cater to this need; simply include certified food options in your current offerings. In addition to increased revenues and marketing advantages, certified organic businesses are also eligible for a tax credit. To become certified organic, a business must pass inspection and renew their certification annually. We have included a list of FDA certifying agents and additional seals for food manufacturers below.
By obtaining certifications that coincide with current industry trends, not only will buyers view your business as progressive and flexible to consumer demands, but consumers will begin to see your brand as an industry leader that values ethics and health.
Waste Reduction
America manufactures 251 million tons of solid waste every year, the majority of which is food. Of all the food produced, 33% is lost during harvesting, processing and distribution or wasted in production. Industry experts estimated that over 870 million people could be fed if we could just save 25% of what is waste during the process. Fruit and vegetables are often the most wasted, coming in as 45% of all lost or wasted food, with cereal, fish and seafood tying at 30%. While the best way to prevent loss is to manage it at the supply chain level, creating a waste reduction plan can also make your business more desirable to buyers. Instead of simply throwing away unusable food, consider donating it to a homeless shelter (FDA Safety Tips for Donating) or animal food manufacturing plant. If these are not feasible (we understand, FDA regulations can be strict) try recycling or selling surplus to a biofuel development plan. Some agencies will even pay food manufacturers for their leftovers or waste, which could create an additional revenue stream for your business.
Safety Initiatives
Workers within the manufacturing industry are most commonly diagnosed with musculoskeletal disorders, mostly due to confined to awkward positions or uncomfortable work stations while working for several hours a day. While there is not much an owner can do about the actual job itself, there are changes they can make to their food processing plant and work environment that can help reduce work-related injuries and ultimately, reduce expenses and build a reputation for safety. Work-related injuries costs food manufacturers millions every year in medical bills, damaged equipment, vocational rehabilitation and missed work; by making just a few small changes and investing in a more ergonomic work environment, owners can save thousands of dollars.
A complete overhaul of the work environment can take time. Talk to employees about the discomforts of their job and review past claims to see where improvement is needed, or hire an OSHA or certified ergonomic agent to help you identify these items. Once identified, invest in ergonomic equipment such as footrests, anti-fatigue mats, or arms rests, depending on your environment. Implementing an employee safety programs can also help reduce accidents and other injuries. By implementing an official safety program, your business could potentially save thousands every year in accident expense. Buyers will also view your business as organized and low risk due to an established safety policy, which is huge in a plant environment.
If you have been thinking of selling your Food Processing business, we hope these tips can help you increase the value so that when you are ready, you will be able to get the highest asking price possible. The first step to selling a business is getting a valuation to see what it is worth. Even if you aren’t quite ready yet, having a professional dissect your business and show you where your business can be improved will allow you to make changes now. After all those long hours and hard work, you owe it to yourself to cash in on that sweat equity and sell your business for the highest price possible. Valuations can also help business owners that are looking to expand or take out a loan. At Viking Mergers & Acquisitions, we help manufacturers like you plan for their future every day. For more information on how you can increase the value of your manufacturing business, contact a broker at Viking today.