4 Ways to Boost the Value of a Rubber Manufacturing Firm
Make sure you take these 4 steps to increase the value of your firm prior to selling.
As the manufacturing industry continues to pick up speed, the time to own a manufacturing business has never been better. American manufacturing is one of the largest (if not the largest) and most profitable industries in our economy and is responsible for almost $2 trillion in revenues and over 17 million jobs. Our manufacturing sector is the 2nd largest in the world and is so large that if it could be counted as a country, it would rank the 10th largest. Everything we use in our daily life started in a manufacturing plant. When you think of a manufacturing plant, you may imagine a tremendous warehouse with conveyor belts and hundreds of employees but the truth is 94% of manufacturing firms have 100 employees or less.
One of the most widely produced products in manufacturing is rubber. We use rubber for so many things that we usually don’t even think about – tires, gloves, rubber bands, erasers, footwear, and in many commercial operations. The product is durable and made at a low-cost, making it a preference among consumers. Competition in the rubber manufacturing industry is high and profits average out at about 4.5%. As a business owner, you always need to be one step ahead, which means planning for your exit long before you are actually ready to make the transition. If you own a rubber manufacturing firm and have been thinking about planning your exit, industry growth patterns and good financials make a good time to begin exploring options. The first step to selling a business is finding out how much it is worth. We have included some commonly used formulas so that you can get a sense of how your business stacks up. Keep in mind that only a professional business intermediary can tell you the true value of your business after reviewing your financials.
- 3x-4x SDE + inventory
- 5x EBIT
- 5-5.5x EBITDA
You should now have a rough idea of how much your business is worth, which gives you a very rare opportunity to work on increasing that value now. Oftentimes, business owners do not check on the value of this business until they are already burned out or ready to retire. Addressing the issue now puts you in a more advantageous position later on down the road. Taking steps can help you boost the value of your rubber manufacturing firm prior to selling it.
One of the biggest expenses to a manufacturer’s bottom line is work-related injuries. Every year, manufacturers spend millions on missed work, damaged equipment and rehabilitation that can be saved with just a few minor changes. Working in a factory setting can be straining and musculoskeletal disorders are the most commonly diagnosed issues found in factory employees. Standing for hours or repeatedly moving in awkward positions can be hard on the human body and while owners cannot change the job itself, they can change the environment. A complete overhaul of the workplace takes time and money, but small changes such as adding floor mats or footrests can reduce injuries, expenses and build a climate that prioritizes safety. Talk to your employees or review past claims to find out which areas can be improved and start there. By implementing an official safety program, your business could potentially save thousands of dollars every year. Not only will this add revenue to your bottom line, but it will show buyers that your business is low-risk and stable due to a safe plant environment.
Preservation is becoming more of a priority in today’s society and there are many ways for small business owners to do their part. Rubber is one of the largest and most problematic sources of waste on our planet, due to the high durability and weatherproof components. We manufacture millions of pounds of rubber that stay on our planet for years after we are finished using them. One way to boost the appeal of your rubber manufacturing firm is to implement a recycling program. Rubber can often be sold to repurposing plants or dropped off to be properly disposed of. In advanced plants, you may even be able to repurpose your products yourself. Buyers will 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.
Inventory & Equipment
One of the most critical components to a successful manufacturing plant is an efficient supply chain. Having an efficient supply chain can make or break a plant and inventory management is a huge part of that. Your inventory is considered a commodity and will weigh in during the valuation phase so we recommend only purchasing products you know you will use right away, control expenses and build strong supplier relationships. A properly managed inventory will directly affect your cash flow, which is one of the most important factors during the valuation and marketing periods.
Equipment is also very important for a rubber manufacturing business. 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. Rubber manufacturing may require expensive equipment such as mill mixers or hydraulic presses, and should be replaced every 15-20 years and frequently tuned up during that period.
One of the most common issues we find when selling a business is uneven client concentrations. Even if you are not thinking of selling for a couple years, we recommend analyzing your customer concentrations on a semi-annual basis starting now. If you discover that 30% or more of your business is tied to any one customer, it is time to make some changes. Imagine yourself as the buyer; you purchase what appears to be a successful business but 6 month in, you lose your biggest customer because the relationship was with the former owner. To rectify the situation, we recommend implementing two strategies simultaneously: transitioning client relationships to designated representatives and taking on a variety of small clients. If you are the type of owner who enjoys working directly with clients and managing relationships, this is a good time for you to slowly work yourself out of that department. Buyers become concerned when they discover that all of the client relationships are funneled through the owner and sometimes, this can even become a deal-killer. Transferring client relationships to designated account representatives will create stability in the eyes of a buyer, and also allow for an easier transition.
We hope that some of these suggestions have helped you. Even if you are not ready to explore selling, understanding the value of your business is critical knowledge for all small business owners. Making the necessary changes to boost the value of your company will not only help you at closing, but also if you decide to take out a loan or expand your business. Knowing the current market value of your business is very important and we can help you determine the value and growth or exit options with a no-cost, no-obligation valuation. The time to secure your future is now so that when you are ready to sell, all of the years of hard work will be worth it.