Manufacturing has been at the heart of the American workforce since our country’s infancy. While technology and globalization have changed the business climate for manufacturing companies, the demand for American products has never been stronger. If you own a manufacturing company and you’re thinking about listing it for sale, it’s important for you to understand that there is no one size fits all solution to selling it. While every situation is different, there are a few guidelines that any manufacturing business owner should abide by when preparing to sell their company.
Find Out What Your Manufacturing Business is Worth
The best way to find the value of your company is to use a professional who has experience in appraising and valuing businesses. A business broker has the background knowledge required to give you an accurate valuation and will take into consideration all of the factors that are typical for all manufacturing businesses, as well as intangible qualities your company may possess. They will also assist you in finding ways to improve the value of your business so you can fetch a higher asking price.
Some of the major value indicators for a manufacturing business include production capacity, supply chain effectiveness, demand forecasting capabilities, technology, working capital, customer base, competition and market conditions. You should also be prepared to answer a few questions about your business to help determine its value. Buyers will want to know your monthly and annual sales. They will want to know your growth forecast, how your business compares to competitors and how your industry is performing as a whole. Be prepared to document your operating procedures as well and answer questions about the level of your involvement in the business. All of these items will factor into your final business valuation.
Clean Up Your Facilities
Superficial things can cause a buyer to lose enthusiasm quickly. If your facilities are a mess, many buyers will not be able to look past it. Clean and organize your facility and make sure all necessary repairs are completed before showing it to any potential buyers. Do not assume that buyers will understand certain conditions. Making sure your business is tidy will show your buyers that you care. It gives the impression of a well-run business and not one that you’ve let go of because you are selling.
Organizing your facility also means operating at top efficiency. Try to shore up any bottlenecks in production. Consider how well managed your manufacturing and supply chain processes are, and how buyers will view them. Knowledgeable buyers will pay attention to the details such as how goods are received from suppliers and the movement of raw materials through the manufacturing process. They will also look at how finished goods are stored in the warehouse, packed and shipped out to customers.
Organizing Your Financials
At some point, all serious buyers are going to want to take a look at your financials and they are going to want to dig deep. Be prepared to supply any and all financial records at a moment’s notice. When buyers have to wait for documents to be produced, the deal often loses momentum and they lose interest. Being ready gives them a good impression of how you run your business.
You should already be current and meticulous with your bookkeeping, but make sure you are using an industry standard, so your records are easy to decipher. There are specific documents that you will need to furnish to buyers, including tax returns, profit & loss statements, balance sheets and year-to-year comparisons for at least the last 3 years. Prepare inventory and equipment lists, manufacturing reports, scrap records and daily quotas as well. If the real estate you operate out of is owned, supply property tax records. If it is leased, provide a copy of your current lease. Last, but not least, try to pay off any high interest debt before listing the business for sale.
Document Your Processes
Having a procedural manual and thoroughly documented processes is important for all businesses, but it is especially critical for manufacturing companies. Having this guide adds value to your business and helps a new potential owner see how they will be able to run it, by providing them with a step-by-step guide. Review your documentation and make sure that your processes are documented end-to-end, paying close attention to those that are more complex or difficult to explain. Here are a few you can focus on to start:
- Manufacturing procedures
- Material requirements planning
- Spare parts management
- Minimum stock quantities and reorder points
- Inflows and outflows of goods
- Inventory counts
- Waste and scrap management
- Safety protocols
- Quality and assurance
- Key performance metrics
Prepare the Business for Your Exit
If your business relies too much on your presence to operate, it will be seen as a risker investment, and consequently, less valuable. Buyers are attracted to situations where they can have a smooth transition and business will resume as usual after the transfer in ownership. They are also looking for a company to invest in, not a job. Most will not be willing to work long hours because the business relies disproportionately on them. For this reason, it is also important to make sure you have a firm management team in place, and your personnel can help transition the new owner after your exit.
Follow Environmental Laws
Knowledgeable buyers will want to make sure your facility is compliant with health, safety and environmental regulation, and will remain that way. In today’s world, consumers are more environmentally conscious. Regulations also show a big shift towards protecting the environment. You must show buyers that you are not only compliant, but also being proactive about keeping up with changing regulations. By being on the cutting edge of change, instead of dragging behind it, you will improve the value and appeal of your manufacturing business. Prepare any pertinent certification of compliance prior to listing your business for sale, including those pertaining to toxic waste removal.
Hire a Business Broker
You are probably great at running your business. That’s because years of hard work and practice have helped you to build your knowledge and refine your craft. But chances are that you haven’t sold many businesses. In fact, most business owners do not sell more than one in their lifetime. Also keep in mind that while you are trying to sell your business, you must simultaneously run it. This can cause your business to suffer, lead to premature burnout and result in costly mistakes in the sale process.
The best way to avoid these headaches is to hire a business broker to help sell your manufacturing company. An experienced broker can allow you to run your business, while they focus on selling it. Their expertise can add, on average, 15 to 20 percent to the sale price of your business. They do this through confidential marketing, helping you to boost the value of your business, and adding leverage in negotiations. Brokers also prequalify buyers and filter out the ‘tire-kickers’. This helps safeguard your business’s private and sensitive information. In fact, they typically have lists of prequalified buyers looking for businesses to buy, so they can help connect you to an investor much faster than if you tried to sell on your own.
When Should You Sell Your Manufacturing Business?
If you think you’re ready to sell your manufacturing company, the time to start is now. You must be properly prepared if you want to maximize your profit from the sale, and to do that you will need time. Keep in mind that the best time to sell a business is when things are going well. You don’t want to wait so long that business cools off, or outside circumstances change the business climate. It’s important to know that you don’t have to do it alone. A good broker can help you to prepare faster and focus on the most important things so you can list your business as quickly as possible.
Corporate Investment Business Brokers (CIBB) has been working with manufacturing business owners in Southwest Florida since 1986. CIBB can guide you through the sale process while you keep growing and running your business. To find out how we can help, we offer a free no-obligation business valuation and consultation. Contact us to get started and discover if selling is the right move for you.
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