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Manufacturing has been at the heart of American innovation and ingenuity for centuries. Yes, time has changed; and as technology and global competition write the next chapter of industrialization, the demand for American-made products has never been stronger.
If you own a manufacturing business, and you’re looking to maximize its value, Raincatcher is here to help. Like every worthwhile endeavor, selling a manufacturing business requires time and meaningful efforts to attract the right kind of buyers. While there’s no one-size-fits-all approach to selling a manufacturing business, you can get great results by following these six essential tips:
1. Obtain a Reliable Valuation of Your Business
The value of your manufacturing business will depend on things such as your production capacity, supply chain effectiveness, demand forecasting capabilities, technology deployed, working capital management, location, customer base, competition, and market conditions.
However, there are a few questions you should ask before listing your business. What are your monthly and annual sales? How much revenue do you generate and what percentage is profit? What’s your growth forecast? How efficient are your operating processes? Can the business continue to operate without your leadership? How do you fare compared to your competitors? Is the current economic climate favorable for your business?
Providing answers to these questions is critical in valuing your business and will impact your asking price.
2. Tidy Up Your Facility
Untidy manufacturing and warehouse facilities can put off potential buyers. So one of your first priorities should be to put your facility in order and to ensure that necessary repairs are made before inviting prospective buyers. Remember, you only have one chance to make a great first impression. How clean are your facilities? Is waste cleaned up quickly or reworked into your manufacturing process efficiently? Are their bottlenecks in the process that slow down production? All of this will be noticed by buyers touring your facilities.
Organizing your facilities is also important. Consider how well managed and repeatable your supply chain and manufacturing processes are, and how they’ll be viewed from the buyer’s perspective. Think about shoring up how goods are received from suppliers, the movement of raw materials through the manufacturing process into production, the final put-away of finished goods into your warehouse, the picking of goods for shipping and the staging process, and the final packing of goods onto the trucks to ship out to your customers. Knowledgeable buyers will keep a watchful eye on all of this.
Assuming that buyers will somehow understand why some certain conditions are inherent in manufacturing is a mistake. From inventory to equipment to production halls, let the appearance of your facility be something you can highlight as you seek to attract the right buyers.
Tidying up your business will go a long way in showing potential buyers that you care and that you’re not simply selling the business but you also want to leave it in good condition.
3. Organize Your Financial Records
Potential buyers will be interested in seeing your financial and production/operational records. Keep them organized and up-to-date. Sort out your taxes, credit history, and other financial records to make it easier for buyers to digest. Ensure that all manufacturing reports, daily quotas, scrap records, work in progress reporting and more are accurate, complete and up-to-date.
Also, try to pay off any high-interest debt you may have prior to the sale. If your bookkeeping system is not the industry standard, work with a professional to standardize it before presenting your accounts to prospective buyers. The last thing you want is to present odd financial records that no one can decipher. Tidy financial records speak volumes about how you conduct business.
4. Document Your Processes
One of the things you should expect from potential buyers is a request for a detailed explanation or documentation of what you do and how you conduct business. If you’re not well-prepared to address buyer requests like this, you can be caught off guard, particularly if what you do is complex and difficult to easily explain.
Documenting your processes or having a step-by-step guide on how you run your business will help guide the new owner. Process documentation is important in manufacturing, especially if what you do is multi-faceted. Spend time with your team to document your processes end-to-end, considering at a minimum the following:
- Demand forecasting
- Reorder points and minimum stock quantities
- Spare parts management
- Material requirements planning
- Purchase requisition and purchase order processing
- Goods receipt/goods issue
- Warehouse inflows and outflows of goods
- Bin numbering systems
- Inventory counts (interim and annual)
- Step-by-step manufacturing procedures
- Quality assurance and safety
- Maintenance and reliability procedures
- Waste and scrap management
- Key metrics to drive performance, safety measures and more.
Presenting prospective buyers with a detailed guide on how the business works will assure them that they will be able to operate the business when you exit.
You can have a great and profitable manufacturing business, but if you don’t document your processes and the business relies heavily on you to operate, the value of your business will take a hit when you put it up for sale.
Numerous experts have argued that a business that depends solely on one individual is like a job. No buyer wants to buy a job. Thus it’s critical that you develop your business to a point where it can function on its own or with little input from you or your employees before the sale.
5. Be Compliant With The Environmental Law
Savvy buyers will not only want to see that your facility is compliant with health, safety and environmental laws in your state or county, they will also want to ensure that the facility will remain compliant once the sale is concluded.
In manufacturing, being compliant with environmental law is more critical than ever. With the ecology movement and more environmentally conscious consumers, it is in the buyers’ best interests to ensure they are buying an environmentally-friendly and sustainable business.
Given this trend, you need to take a more proactive approach in order to extract the most value from your business. And that means keeping up with constantly evolving regulations and using environmentally friendly materials in your production.
Environmentally conscious buyers will also want to see your certification or your compliance records including those pertaining to toxic waste removal. Be sure to obtain OSHA certification if necessary and maintain a safe work environment for your employees. All these will add greatly to the value of your company.
6. Hire A professional Business Broker
You’re an expert business owner – not a professional business seller. It’s just staggering the number of owners out there who can’t stand the thought of enlisting the service of professional business brokers to help them navigate the sale process. Is it nice to save the brokerage fees? Yes, but studies have shown that a broker can add between 15 to 20 percent to the business sales price. Also, finding a broker who has experience working with a business of your revenue size is important. If you have revenues above $20MM you might need a broker who specializes in mergers and acquisitions.
While there are times when taking the DIY route can be helpful, most sellers would be better off hiring professional business brokers like Raincatcher to oversee tasks like marketing, contract negotiation, and business valuation.
Sell A Manufacturing Business for Maximum Value
At Raincatcher we employ industry standard techniques to help manufacturing business owners maximize profits. With over three decades of experience, we have seasoned professionals to help you sell a manufacturing business at maximum value. Whether it’s company valuation, or machinery and equipment appraising, our team of experts is always available to lend a hand. Contact us now for a free valuation and other business tools to help you sell your business.