Tips For Making Your Manufacturing Business Acquisition Worthy
At the start of the New Year, many small manufacturing business owners will vow to be retired by the close of the year. Spending time enjoying the fruits of their labor will be this year's resolution of many. Will the sale of your manufacturing business provide the lifestyle you want in retirement? With so many businesses going on the market, how do you make your manufacturing business attractive to a buyer? Interestingly the things that will make your business acquisition worthy are the same things that will ensure that your manufacturing business is successful and growing. Here are some Tips For Making Your Manufacturing Business Acquisition Worthy:
An Acquisition Worthy Staff:
One of the biggest fears buyers have is that the business is too dependent on you, the Seller. Sure, you can tell the buyer that you’ll be around to help them transition, but they see risk if you’re the only person doing the quotes and interacting with the customers. Yes, you’re still strong and your mind is sharp, but if you get hit by a truck the day after closing, the buyer’s investment could be at risk. In your quest to make your business acquisition worthy, here’s what buyers want to see:
- Managers in place for every key function in the business. That means someone other than you can do quoting, talk to customers and manage both the plant floor and the office. If that’s not the case, start training them now.
- Buyers see danger if they walk through your facility and every employee has white hair. If your entire staff retires within a few months of purchase, the buyer's investment is at risk. If the majority of your staff is close to retirement, you need to start getting some younger blood trained and ready.
An Acquisition Worthy Facility:
“Curb Appeal” isn’t just for residential real estate; it’s for manufacturing businesses too! Curb appeal extends far beyond the exterior of your building. If a buyer sees a messy facility, they’ll assume the entire business is a mess and will be hard to transition. Here are the hot buttons that buyer’s look for:
- The facility should be free from clutter and safe to walk around.
- Metal chip piles on the floor don’t make you look busy; it makes a buyer think you don’t have pride of ownership and you don’t take care of your assets.
- When a buyer sees oil or coolant puddles on the shop floor, they immediately think “environmental contamination.”
- Heaping stacks of papers says that you’re unorganized. Make an effort to digitize what you need and get rid of what you don’t.
An Acquisition Worthy Business:
Here’s what a majority of manufacturing business buyers seek in an acquisition:
- Have 3-5 years of tax returns and financial statements ready and available.
- Most businesses are sold at a multiple of Seller's Discretionary Earnings, (SDE) or Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). You have to be able to prove your salary and benefits. That means salary, health insurance, car payments, or any other financial benefit you receive. If you can't prove it, we can't use it in the calculation.
- Have systems in place for every function within your business. These should be written and easy to follow. This tells a buyer that the transition will be smooth.
- Have a computerized quoting and billing system that can accurately track all costs.
- Diversification of industries served. Make sure that a downturn in one industry won’t financially destroy the company.
- Diversification of your customer base with not more than 15% of your revenue coming from your top customer.
Perhaps you’ve nailed some of these items, but not others. Can your manufacturing business still be sold? Visit Accelerated Manufacturing Brokers, Inc., to learn more about making your manufacturing business acquisition worthy.