5 Tips On Selling Your Screen Printing & Embroidery Business
The screen printing and embroidery industry is an attractive point of entry for many buyers seeking a business to purchase.
All privately held business owners eventually will be faced with a decision about leaving their businesses. While some may pass it on to the next generation in their family, most will need to go through a process to put it on the market and sell it to a new owner. It is extremely important that a business owner does not wait until they need or must sell their company before they begin the planning process to sell it.
The screen printing and embroidery industry is an attractive point of entry for many buyers seeking a business to purchase. Most businesses within this sector tend to be less than $3 million in revenue, meaning more potential buyers can qualify to purchase an ongoing, successful operation. Screen printing and embroidery businesses also can produce excellent cash flow for a buyer. In addition, it is typically an “8-5, 5-day a week” type business which is also very attractive to many buyers. In the United States, there are approximately 11,000 screen printing and embroidery companies generating a collective $8 billion in revenue. There are also no companies with a dominant share of this industry. The screen printing and embroidery field has several factors that go into pricing calculations, and to help give owners an idea of what is important, we have listed the most common formula below. Keep in mind that this is merely a guide and only a professional business broker can tell you the true value of your business.
- 55-60% of annual sales plus inventory
Now that you are aware of what goes into calculating a purchase price on a screen printing and embroidery business, we can help you take steps now to increase the value so that when you are ready to sell, you are more likely to secure a higher price. There are five key things the owner of a screen printing and embroidery business should do to maximize the value of their business and make it more attractive for a sale:
1) Focus on annually increasing the cash flow of the business
Cash flow is the ultimate determination of the valuation of the company. The cash flow must support the debt to be taken on to buy the business plus a living wage for the buyer. A strong trend of growing cash flow will maximize the sales price of the business. Focusing on increasing revenue while managing expenses is critical to increasing the cash flow.
2) Diversify your customer base
It is tempting to focus on a handful of large accounts that place multiple large orders during the year. However, having too large a percentage of your business tied to those large customers brings a higher level of risk to a buyer and increases the difficulty for the buyer to obtain financing to purchase the business. Spreading that risk among multiple customers helps insulate your revenue stream from potential volatility of the market making it attractive to purchase.
3) Hire, train and retain good talent
A new owner may or may not come from within the industry. It could be a financial buyer who has the resources to purchase the business but does not have experience in the industry. For them, it will be extremely important that the staff they inherit are well trained and will stay on after a sale. Ideally, a seller will have one or more key staff that can run the operation in their absence. A new owner may want those experienced workers to take on a larger role in helping them run the operation. It is critical that the seller has taken the time to train their workforce and has developed managerial skills in key employees.
4) Maintain/Upgrade your equipment and facilities
Production is where the money is made in the screen printing and embroidery industry. Placing a priority on scheduled maintenance of all equipment and periodically replacing older equipment with newer, faster and automated equipment will allow for more production time and larger production runs. Digital printing technology is increasing in importance as well due to shorter production cycles and the ability to produce higher quality prints. An owner should also spend time on keeping their facility visually clean and organized. While the screen printing and embroidery industry can be perceived as dirty, it is important to know that many financial buyers come from an office environment and have not spent much time in a manufacturing operation. If they cannot envision themselves working in that environment every day, they may pass over what could otherwise be a good fit for them financially. Having a clean and well-organized facility during buyer tours is critical.
5) Develop and implement a plan to increase business through the slower months
The screen printing and embroidery industry generally has seasonal characteristics like many other industry sectors. Typically, the period between March and October are the busiest months while November through February are the slower months. While these slower months may be a good time to work on facility and equipment maintenance, they are also an opportunity to increase the cash flow of the business. If you are not doing much in the way of online or corporate sales, this could be a great opportunity to increase year-round revenue opportunities.
Implementing these suggestions for increasing the value of your screen printing and embroidery business will put you in the right position to sell your company at the right time. Viking Mergers & Acquisitions has been assisting business owners just like you for over 21 years in the sale of their business. Our firm offers a no-cost, no-obligation valuation service for business owners to help them understand the market value of their company. When they are ready to sell, our firm’s team of professionals will manage the process from beginning to end, working to maximize the benefit to the seller.