If you’re counting on the sale of your manufacturing business to fund your retirement, getting the highest price possible is important. Here are seven things you can do to make sure your business sells for top dollar. Manufacturing business buyers consider these things “Must-Haves."
No. 1 - Fully Trained Staff
Take steps to ensure that your staff is fully trained and that the business can function without your supervision. This means having documented systems in place that your replacement can easily follow. Buyers particularly want to see someone other than the Seller performing the functions of quoting and sales. If the business can function without you, it means that you’ve set up a strong team. The buyer will be able to envision himself taking the helm and working on business development without being bogged down with putting out fires.
No. 2 - The Numbers
Make sure your P&L can easily be matched to your tax return. Buyers want to know what the cash flow or Seller Discretionary Earnings (SDE) is and they want to be able to easily find the numbers. A critical number on your tax return is officer compensation, and there is a specific line item for it. Sometimes, however, the number appearing on the tax return for officer compensation is less than the Seller’s actual take. This could be for a number of legitimate reasons.
For example, the corporate accountant may be taking half the salary and placing it in cost of goods sold. When recasting financials to provide an SDE chart for a client company’s Offering Memorandum, we discovered that the officer compensation was double what was stated on that line item of the tax return. The other half was “hidden” in a different category. Had we not caught that, the value of the company would have been placed at $1 million less.
No. 3 - Buyers see safety in diversification
Make sure your sales are diversified over multiple sectors and customers. If your sales are heavily weighted among only a few of either category, buyers will discount the price, and some will not even consider your business as an acquisition target. This can be a long process and take years to balance, but the payoff will be huge.
No. 4 - Employee Retirement Age
Buyers will see danger if all of your employees are approaching retirement age. If your staff is aging, consider starting to train younger workers, even if only on a part-time basis. Recruiting from a local or regional technical school can be helpful.
No. 5 - Facility Curb Appeal
Make sure your manufacturing business facility is neat, clean, and well organized. Modern manufacturing buyers don’t want to work in and manage a filthy environment. If you have piles of chips and scrap lying around your machines, GET RID OF THEM. Both the shop and the offices need to look professional.
If your company has inventory parts, they need to be on shelves that are clearly labeled and correspond to your computerized inventory. It is estimated that the average business owner spends approximately 150 hours a year looking for lost information. When a potential buyer visits your facility, everything they see should tell them that your business would be easy to take over and manage.
No. 6 - Seller Financing and Transition Time
Offer to finance some portion of the purchase price and a reasonable transition time. There is a reason that SBA lenders REQUIRE Sellers to provide a small amount of financing on the deals they fund. They understand that the Seller’s cooperation in transitioning the business is critical to the health of the business when the new buyer takes over. Holding some paper is the bank’s and the buyer’s assurance that you won’t just take the money and run.
No. 7 - Accounts Receivable
Have clear accounts receivable policies and get older accounts cleaned up. Buyers want to see that your customers are paying in a reasonable period of time.
Nailing these 7 major buyer concerns will ensure that your manufacturing business is an attractive acquisition target and that it sells for top dollar.