4 Steps to Selling a Plastics Manufacturing Business
Plastic manufacturing businesses are in high demand due to positive trends and growth predictions.
As manufacturing makes its move back to American soil, the time to own a manufacturing business has never been better. Manufacturing is one of the largest and most profitable industries in America, employing over 17.6 million people and contributing over to our $1.9 trillion to our economy. The U.S. manufacturing sector is the 2nd largest economy in the world and if it were counted as a country, it would rank the 10th largest in the world. When you think about it, almost everything we use in our daily lives came from a manufacturing plant and while you might envision a massive warehouse where the items are being assembled, 94% of manufacturing companies have fewer than 100 employees.
Plastic is becoming the preferred material for manufacturers around the globe in every industry. More OEMs (original equipment manufacturers) are choosing plastic over metal due to a lower cost, opening up the market with an increased demand. Competition in this industry is high, but niche markets allow for good profitability with margins averaging around 4.5%. Businesses in this industry are producing items such as plastic bottles, pipes, rubber tires, auto parts and much more. If you own a plastics manufacturing business and have been thinking about selling, positive industry outlook coupled with good financials make it a good time to explore your options. The first step to selling your business is getting a valuation. While only a professional business broker can tell you the true value of your plastics manufacturing business, these numbers can serve as a guide so that you understand the critical factors in determining the worth of your company.
- 4x SDE + inventory
- 5x EBIT
- 5-5.5x EBITDA
Now that you have taken a look at the formulas used to determine the value of a plastics manufacturing business, you can begin making changes to ensure your business secures the highest sales price possible. After selling dozens of manufacturing firms, our intermediaries have compiled this list of 4 tips to help the value of your plastics manufacturing company.
One of the most important steps in preparing a business for sale is balancing the customer concentrations. Business owners should begin analyzing their customer concentrations on a semi-annual basis at least a couple years before they are ready to sell. If you have discovered that 30% or more of your revenue is linked to any one customer, it’s time to make some adjustments. Every buyer’s biggest fear is losing a key customer after the sale because the relationship was with the previous owner, so by creating a more even concentration of customers, buyers will feel more at ease. While analyzing your customer concentrations, you may also want to get proactive and take a look at your client relations. If you are the type of business owner that manages client relationships directly, you will need to transfer these relationships to sales representatives prior to listing the business. Buyers often worry that clients value the relationship with the owner more than with the company and the fear of losing a big client due to a transitioning owner can be a deal breaker. Transferring client relationships to designated account representatives will create stability in the eyes of a buyer, and also allow for an easier transition.
Work-related injuries costs manufacturers millions of dollars every year in damaged equipment, medical bills, rehabilitation and missed work; by making just a few changes and investing in an ergonomic work environment, owners can save thousands of dollars. Due to the straining conditions of factory and warehouse work, manufacturing employees are most commonly diagnosed with musculoskeletal disorders. Standing in awkward positions for hours on end has its effects on the human body and while owners cannot change the job itself, they can change certain aspects of the work environment. Small changes such as floor mats or footrests that can help reduce work-related injuries and ultimately, reduce expenses and build a reputation for safety. While a complete overhaul of the work environment can take time, talking to employees about the discomforts of their job and reviewing past claims to see where improvement is needed is a great start. By implementing an official safety program, your business could potentially save thousands of dollars every year. Buyers will also view your business as stable and low risk due to an implemented safety policy, which is critical in a plant environment.
Equipment & Inventory
One of the single most important ways to increase the value of a plastics manufacturing business is proper equipment management. Equipment Inventory is something that all manufacturing businesses struggle with, but since equipment value is a factor in sales price calculations, it is worth the time and money to maintain. The plastics sector requires specialized molding and welding equipment which should be replaced every 15 years at the most and well-maintained throughout the years.
Aside from equipment, you’ll also want to closely manage your materials inventory. Materials inventory is considered a commodity in this industry and carries a lot of weight during the valuation process so you’ll want to ensure you only purchase materials you are going to use right away, control costs and foster good supplier relations. How you manage your materials inventory will directly reflect in your cash flow, which is probably the most critical part of marketing a business.
Did you know that every single piece of plastic ever made is still on this planet? We manufacturer millions of pounds of plastic a year and half of it is only used once then thrown away. Americans are placing a higher value on preserving our planet than ever before, and most consumers are expecting small businesses and corporations alike to do their part in conservation. The benefit of owning a plastics manufacturing firm is that you have the option of recycling material to create new product. Setting up a recycling program can help you cut costs and save money by reusing resources instead of buying new materials. Buyers will also appreciate your expense control methods and the fact that you have an established recycling program, as opposed to them setting up their own once they take over.
We hope these tips have given you some food for thought, even if you are not quite ready to explore transition options. Aside from planning for the future, knowing how your business stacks up to competitors is important. Making changes now to increase the value of your company will not only set you up for a better sales price when you are ready to sell, but will also help you in other financial situations. Should you need to take out a loan or if you just want to get an idea of how to better run your business and increase revenue, these tips can help you. Knowing what your business is worth is a crucial part of growing and expanding and at Viking Mergers, we can tell you with a no-cost, no-obligation valuation. Prepare yourself for the future; take these steps to increase the value of your business so that when it comes time to sell, your years of hard work will all be worth it.