If you are considering selling a manufacturing business, there are a few important points to consider. Some considerations are common to selling any type of business, and others are specific to selling a manufacturing business (particularly in today’s economic climate). The manufacturing industry had just started gaining momentum before the COVID-19 pandemic struck, and while manufacturers are beginning to regain their footing, the industry is sure to continue facing an ever-changing environment. Through decades of experience buying and selling businesses across many industries, we have identified five key points to consider when selling a manufacturing business:
1. What goes into a business valuation?
For a number of reasons, it is essential that you possess a fair and accurate accounting of your manufacturing business’s value; but a professional business appraisal is particularly important when attempting to sell your business. A valuation document is the single most useful piece of financial information about any company, so it requires an accurate and comprehensive approach. A professional valuation of your manufacturing business may require:
- Past 3 years Federal Tax Returns
- Last 3 years Profit and Loss Statements (P&L), including balance sheets
- Interim Profit and Loss Statement (P&L), including balance sheet and a year-to-date comparison for the same period last year
- Average value of inventory of saleable product on hand at any time of year
- Equipment List
- Copy of tax bill on real estate, if the real estate may be included in the sale
- Copy of any real estate appraisal that is available
- Lease information
2. How do you maximize a manufacturing business valuation?
We have sold more than 600 businesses over the past 20 years, so we have seen what factors tend to increase or decrease the value of a business. The good news is this: in addition to the aforementioned numbers entered into standard market multiples, there are actionable steps you can take to improve your manufacturing business’s value.
- Staff Training and/or “Upskilling”. Most buyers want to know they are walking into a “well-oiled machine.” A well-run manufacturing business has well-trained employees. Trained employees show buyers that your business is reputable and organized, and this requires a foundation of advanced and consistent training. If you do not already have a consistent employee training program in place, it is never too late to start. Additionally, does your engineering workforce include people with more technological expertise (for example, in software and IoT), versus strictly mechanical and electrical engineers? Depending on your timeline, it may be worth the investment to “upskill” your current workforce. In a 2019 industry survey, 77% of workers said they are willing to learn new skills now or completely retrain to improve their future employability.
- Growth Plans. For someone selling a manufacturing business, it may feel counterintuitive to talk about growth plans. But remember, higher profits = higher value. If you can show a steady increase in profits and a business model that shows future growth, buyers will want to buy your business. That means, now is the time to sit down and brainstorm growth strategies. Particularly in the manufacturing industry, avoid the temptation to “hunker down,” and instead seek to build flexibility on all fronts, looking to operational efficiencies, launching new products or services, and entering new markets. Think about how you can grow your business, start taking steps to make it happen, and get your plans on paper. This will be the hard evidence of your growth plans and will help when you begin meeting with potential buyers.
3. Why are you selling your manufacturing business?
There are many reasons to sell a business. Why you are selling your business will help inform how to sell your business.
- Retirement. You have determined it is time to retire. Perhaps it will be a family succession, or you want to give an employee the opportunity to buy the business, or you are dissolving a business partnership; regardless, it is essential that you work with an experienced partner to ensure a smooth transition, maintain business continuity, and preserve your business legacy and reputation.
- Opportunity. You have another investment opportunity you want to take advantage of, but you are not ready to retire from the manufacturing business. You are still committed to the growth of your manufacturing company, but you would like to free yourself up enough to invest in another business or project. Here, a strategic buyer like a private equity firm may be interested. In this case, you maintain income and benefits, likely even a minority stake in the company, but reduce exposure and gain financial security.
- Asset Liquidation. Life has presented you with circumstances that demand an influx of cash. You are not ready to launch an exit strategy, but you need to liquidate. Again, finding a strategic buyer opens up valuable options. Look for an upfront liquidity event that allows you to keep your job and ideally offers you a minority stake in the business. This provides your financial security along with long term income and growth opportunities.
4. When is the best time to sell a manufacturing business?
Simply put, the best time to sell your manufacturing business is when it is doing well. This really applies to any business, and yes, we know that may feel counter-intuitive. If your manufacturing business is trending up, it is normal to assume that if you wait a little longer, you can get even more for your company. Sadly, we have seen that rationale end in a great deal of regret for many sellers we know. These owners often encountered an unforeseen circumstance like a change in their health, the loss of a key client, or an unfortunate turn in the economy.
We understand the heartache and frustration that comes with this type of situation, especially after years of pouring blood, sweat, and tears into a business. A confidential, professional business valuation provides essential information that helps indicate the best time to sell a company. As we have all been reminded this year, we cannot see what the future holds. So, we must focus on what we do know, and financials are the best evidence of where your manufacturing business is going. Timing is key; you do not want to look back and wish you had acted sooner.
5. Who can help with selling a manufacturing business?
When you understand the financial and operational aspects of your business, you can identify where you are succeeding and where you may need to improve to reach your ultimate goals. As we have already mentioned, selling a manufacturing business begins with an accurate, comprehensive business valuation. Also, when considering the various reasons for wanting or needing to sell, it is advantageous to utilize a business broker or advisor with a large network of potential buyers. All of this is where Viking comes in, as we put our clients first and ensure the most successful transitions and lucrative exits for our clients. Utilizing a proven approach to business valuations, our advisors have almost nine decades of combined experience buying and selling businesses. Our closing rate is 4x the industry average, and businesses we represent sell for, on average, 96%+ of their asking price.
Viking Mergers & Acquisitions can help you understand the process of selling a manufacturing business, where your business stands today, and how far you need to go to achieve your goals. Whenever you are ready, we are here to help. Contact us today for a no-cost, no-obligation valuation.
1 Ross, B., Stubbings, C., Sheppard, B., Kelly, C., 2019. Upskilling: Bridging the Digital Divide, PwC, https://www.pwc.com/gx/en/ issues/upskilling.html
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