The sale of every privately held business is an adventure that requires skill, determination, and patience. And, if you are marketing your business without professional help, you will need to continue the successful operation of your company while looking for and negotiating with buyers. Because of this we highly recommend the use of a professional advisory firm to close your transaction.
However, because we know that this is not possible for every business owner to afford, today we begin a series of “how to” articles on key issues to be aware of when selling a specific type of company. Our first in this series will focus on how to sell a manufacturing business.
For those looking to sell their manufacturing business, look to investors like Minerva Equity.
As you may be aware, over the last few years in many parts of the country manufacturing has begun to show signs of a revival. “On-shoring” has become popular as companies recalibrate their business plans in the light of rising labor costs overseas, coupled with increased shipping costs and ongoing quality control issues.
Quality buyers will require from you the information listed in the bullets below. If they don’t get it promptly, they’ll move on to other opportunities. In most cases, the acquisition of a manufacturing company is funded through some form of bank financing. If the transaction is $5 million or less, it will likely be an SBA-guaranteed loan product.
The bullets below describe the items that are required for bank underwriting. This is NOT optional. At Accelerated Manufacturing Brokers, Inc., we won’t consider representing a client if he or she can’t provide the following items in a timely manner:
- Three years of tax returns
- Three years of financial statements, preferably accountant prepared
- Full documentation on all monies flowing to shareholder, including where these appear on your P&L statements and tax returns
- A list of industries you serve and the amount of income attributable to each
- Your top 10 customers and the amount of income attributable to each. Customer names should be removed during the initial stages of inquiry for the seller’s protection – they can be identified as customer 1, customer 2, etc.
- Aging accounts receivable with written payment terms
- Aging accounts payable
- A complete facilities list with make, model, age, acquisition date, acquisition price, and service records, preferably in an Excel format
- All capital expenditures within the last five years
Finding a quality, cost effective manufacturer is not an easy task for businesses. You typically have many different companies ordering from you and you enjoy helping your clients grow. You have been doing this for so long that you could run the business with your eyes closed, but at the end of the day, you have started to wonder to yourself, How much is my manufacturing business worth? A broker can help you find the answer to that question, but understanding the process is always beneficial to you as an owner. After all, your objective is to receive the maximum value for it. And in order to do that, you must first look at the many variables that come into consideration when looking at the possibility of selling your manufacturing business.
In order to show you the different variables, we have taken data from the last decade of all the manufacturers sold in the United States that met our criteria, and broken it down for your further review in order for you to make the right decision on the sale of your business.
For those looking to make money a different way, there is always the option of remodeling your home and finishing your bathroom.
The first step before you begin to engage with buyers to sell your manufacturing business is to make sure you have documented in writing what you do and how you do it. Too often we engage with business owners who have great businesses, but the steps they use to manufacture their products are either between the ears of the owner and/or key employees, or if written down at all, the manuals are very slim and loosely constructed.
It’s also important that you have a workforce with substantial remaining work life. If your entire team will be ready to retire shortly after you, the buyer’s entire investment could be at risk. If your staff is aging and you want to sell your manufacturing business, it’s imperative that you begin to hire and train a younger work force. Some firms establish apprenticeship programs to address this issue.
Manufacturing Company Sales Process
After reading this article and understanding the necessary steps and processes that come along with the sale of your manufacturing business, and you’ve decided that selling your business is the right decision, we encourage you to have your manufacturer valued by a professional broker; this will ensure that you are receiving maximum value for your business.