When you work at a high level in the corporate world, you’re often under a lot of pressure. As a CEO, you’re responsible for numerous people and hundreds of thousands — if not millions — of dollars’ worth of assets and deals.
And yet even if you receive a reasonable salary, all of the work and effort you put in is essentially for other people — the company’s owner or stakeholders. So it’s not surprising if you eventually start thinking about building something for yourself.
The Advantages of Buying an Existing Business
As the Small Business Administration points out, buying an existing business has several advantages over starting one from the ground up. For example, it comes with an established customer base, well thought out processes, a trained workforce and defined operating expenses.
Moreover, in recent years, a growing number of manufacturing companies have appeared on the market due to the fact that Baby Boomers are reaching retirement age. And while a certain amount of them are being purchased by investment companies, more and more are being bought by professionals who are looking for an alternative to a corporate career.
Two Types of Buyers of Manufacturing Companies
Besides Private Equities and large strategic buyers, there are generally, two types of buyers who are in the market for manufacturing companies:
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Corporate Executives Looking for a Change
These are in general professionals between the ages of 40 and 50 who want to change the course of their careers — as well as their future outlook — by becoming business owners. By purchasing a business and leveraging their exponential expertise and vast networks, they can often grow an acquired business at a rapid pace. Then they plan to sell it at a considerable profit when they reach retirement age.
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Young Business People Who Don’t Want a Regular Corporate Career
As Stanford Business reports, there are recent graduates who don’t have the experience to be hired as a corporate executive. At the same time, they don’t have an innovative idea for a startup. Fortunately, they can apply their entrepreneurial spirit and up-to-date knowledge to the running of an existing business, which gives them a platform on which to build an even larger company.
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Tips for Buying an Existing Manufacturing Business
If you’re interested in purchasing a manufacturing business, it’s advisable to understand the acquisition process at a high level. Fundera states that there are eight steps to buying a company:
- Determine what type of business you want to purchase. It’s helpful if the business is in a segment with which you’re familiar. For example, if you’ve had a career in the life sciences sector, it can be a good idea to purchase a business that manufactures medical devices.
- Look for businesses that are for sale. It’s wise to work with a business broker who is knowledgeable with companies in the sector of your choice. In general, the sale of a company is approached in a discreet manner, so you’ll need the insights and network of an expert to help you find a good opportunity.
- Understand the reasons for the sale. It’s best if the owner simply wants to leave his or her company in good hands when he or she retires. However, there may be other reasons, so do your research to ensure that none of them pose a risk to you.
- Select a business to buy. Base your choice on your resources, budget, objectives and timeline.
- Perform due diligence. This is also where your business broker will advise you. It’s important to be aware of the true condition of the business, both financially and operationally, before you make an actual offer. That way, you know what you’re committing yourself to.
- Evaluate the price of the company. Determine how much the company is worth based on its assets, liabilities, earnings and projected earnings.
- Secure capital for the purchase. You’ll likely require financing, so make sure you can back up what you’re asking the lender for with the correct documentation.
- Close the deal. Once you have the financing in place, it’s time to negotiate the finer points of the transaction and seal the deal.
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In addition, Forbes advises that acquisitions can take a long time to negotiate and close. That’s why it’s important to be patient and have a realistic timeline in mind.
Exit Your Job Gracefully
When you’ve signed the deal, it’s time to leave your corporate position. Inc. recommends doing this as gracefully as possible. After all, as a new business owner, you’re likely to run into some of your contacts in the future — and you might still want to do business with them.
Purchasing an existing business is an excellent way for aspiring entrepreneurs and corporate executives to start out for themselves. By seeking the support of an experienced business broker, you can maximize your chances of acquiring a viable company at a reasonable price.