How to get the Best Price for your Metal Fabrication Business
These four steps can help you get the best price for your metal manufacturing business.
Manufacturing is one the largest and most profitable industries in America, supporting an estimated 17.6 million jobs and contributing over $1,966,495,000,000 to our GDP. Our Manufacturing sector is the 2nd largest in the world and is so big that if it were its own country, it would rank 10th largest world economy. To put this in perceptive, almost everything we use comes from a manufacturing plant; from the airplanes we travel on to the food on our table, it all started with manufacturing before working its way through the supply chain. This probably paints a picture of a massive plant but the reality is that 94% of all manufacturing businesses in the United States have fewer than 100 employees, classifying them as small businesses. With that being said, as manufacturing returns to American soil and continues to grow, the time to own a manufacturing business is America has never been better.
Metal fabrication is an integral part of manufacturing and is critical to so many other industries in America. Petroleum, automobiles, construction and so many other types of businesses rely heavily on the metal fabrication trade but at the same time, the stability of these industries affect metal manufacturing. Metal Fabrication started 2015 with high profitability and steady growth and while it has slowed slightly, the industry is still on track. If you own a business in the metal fabrication field and have been thinking about selling, the most important factors are that the industry is growing and your business is trending upwards. Industry trends are on your side right now, so this may be a good time to examine your business and see if there are any changes you can make now so that when you are ready to sell, you are able to secure the highest price possible. The first step to getting your business ready for market is to find out how much it is worth. Remember that only a professional intermediary can tell you the true value of your metal fabrication business, but these formulas can give you an idea of which areas may need some improvement.
- 5x SDE + inventory
- 3x EBIT
- 4x EBITDA
Now that you have a clearer idea of what goes into valuing a metal fabrication business, you can begin taking steps to increase its value. We have put together these 4 tips to help business owners maximize the value of their metal fabrication business and secure the highest sales price at closing.
Metal fabrication is an industry where longevity matters. The more years you have been in business, the more appealing the business becomes to buyers. Manufacturing M&A transactions have shifted in high gear, with this year’s trend revolving around the concept of buying out smaller companies to expand reach and impact. Larger conglomerates are seeking steady, long standing metal fabrication businesses to acquire so that they can inherit customers, distribution channels and niche markets. Like any business, buyers are looking for a clean, constant reputation for maximum value. If you have only been in business for a few years, it may be worth it to consider acquiring a business of your own to build on what you have. Buyers are looking for a balance between strong financials and substantial growth, and time will help with that. In a field with immense competition, especially with corporate giants, the longevity of your business is a critical factor in the eyes of buyers.
One of the biggest steps in preparing any business for sale is evening out the client concentrations. Business owners should begin analyzing their customer balances on a semi-annual basis a couple years before they are ready to sell, and if you are noticing that 30% or more of your revenue is tied to any one customer, it’s time to make some changes. A buyer’s biggest fear is losing a key customer after the sale, so by creating a more even concentration of customers, buyers will feel more at ease. At the same time, if you are the type of business owner that manages client relationships directly, you will need to transfer these relationships to sales people prior to listing the business. A big concern among buyers is that clients value the relationship with the owner more than with the company and the fear of losing a client due to a transitioning owner can be a deal breaker. By transferring customer relationships to official account representatives, the transition between seller and buyer can go much smoother and without any qualms.
In an industry like metal fabrication, modern and updated equipment can make or break the value of a business. Small businesses in the field are often competing with large corporations who have the funds to constantly replace equipment whereas the cost may be too much for mid-level companies. Obtaining the latest version of equipment may not be plausible, so you will want to try and take care of what you do have by servicing it on a regular basis. Purchasing or leasing new equipment as often as possible is a good practice and having updated equipment will not only impress buyers, but it will increase your cash flow due to a higher level of efficiency.
One of the most appealing attributes to any business is the ease of transition. Buyers are looking for a business that they can seamlessly slip into, with any major disruptions or changes to the business due to the loss of the previous owner. When planning for the sale of your company, transitioning your responsibilities to key managers will help create an easier transition for the buyer. As the owner, you will want your job to be solely managing the business, not getting involved in the tasks of other departments. Most buyers plan on managing the business at a higher-level, so by delegating any tasks that you can will help tremendously. Along with this, ensuring that your departments are structured and capable of fully functioning without depending on you will also show buyers that your business is organized and ultimately, a good investment.
If you have been thinking about selling your metal fabrication business, we hope that these tips have helped you. The manufacturing industry in America has a very bright future ahead and buyers from all over the world are interested in buying in to this market. The first step to planning for the future of your business is a valuation, and we can provide that for you at no-cost or obligation. As a business owner, you always need to be one step ahead – let us help you plan the next more for your business.