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What’s My Manufacturing Business Worth – Business Value

What is my business worth - business value
⏱ Reading Time: 5 minutes

If I Had A Dime From Every Manufacturing Business Who Asked For Business Value

“What’s my business worth?”  If I only had a dime for every time I was asked this question!  As a Manufacturing Business Broker, this is the first question most potential clients ask. Everyone wants to know the “secret formula” used by business brokers to come up with an appropriate asking price.  The problem is that if you ask a dozen different brokers this question, you’ll probably get a dozen different answers.  The truth is there are several different methods to come up with a starting base number, and each method will cause you to arrive at a different base number. Multiple adjustments are made from the base number, adjusting the number up or down.  These adjustments are as individual as the business itself and the buyer that is considering the purchase of it.

Figuring out what your manufacturing company is worth

This is an issue that every manufacturing business owner will have to face, with few exceptions.  Even owners that plan to pass their manufacturing business to the next generation will need to establish a business value for a payout over time.  My goal is to educate our readership on the various methods used to obtain a “base” number and the variables that come into play that will cause a buyer to add or subtract from that number.  The more information you have, the better you will be able to prepare your business; so that when it’s time to sell, there are no surprises. Regardless if you are nowhere near retirement, this series is for you too!  There are things you can do years in advance to prepare your business to stand apart from competing companies and command a higher sale price.  Some of these strategies require years to implement; so starting early is key. I will share with you incredible stories of companies that sold for millions that had less than $200,000 in net profit the previous year, and how we were able to accomplish that.  I will also share why some companies with millions in sales are next to impossible to sell.

Be Our Model, Get Your Manufacturing Business Value For Free

We’re going to start with some basics.   We’ll cover the basics in both industry terminology and methods of valuation.  In later installments, we’ll get into the really fun stuff – how to make your manufacturing company worth more!  As we move forward, I hope some of you will write in with questions, or allow me to use your business as a “blind” example in this work. Without using your company name or any information to indicate who you are, we could use your “numbers” and business as an educational example.  In the process, you would be getting a free opinion of what your company is worth.

Go In With Your Eyes Open

Before we officially launch this series … a word of caution.  In most states, there is no licensing law for business brokers.   You can hang a shingle, get a phone and email address and be in business tomorrow.   Some of these “brokers” have no clue what your business value is.  I spoke to a potential client today who told me that he was being courted by a “Mergers & Acquisitions” specialist who wanted to charge him $50,000 upfront.  This is how some of these M&A firms make their money.  They don’t give a crap if they sell your business; they make a living off the upfront money they charge you. I get faxes each week from some of these scam artists, asking to sell MY business.   Another favorite tactic is to lure you into signing a listing document because they are “working with one of your competitors that would like to buy you out.”  What they really want is to tie your business up with a VERY LONG listing agreement, hoping they’ll get lucky and find a buyer.

How Do You Find Appropriate Buyers

But how does ANY broker actually find appropriate buyers for their clients?  There are plenty of business “listing” sites that most brokers use.  These sites are basically like an MLS for real estate – except for businesses.  Mostly brokers, not qualified buyers, visit these sites.  I would argue that the most successful way a broker can quickly find an appropriate buyer is to be engrossed in the same industry. Whether it is the restaurant business or a machine shop, the broker needs to know who the key players in an industry are.  Who is successful, who is looking to expand and who has the Intestinal fortitude and money to pull it off?  Only someone immersed within an industry would know who the appropriate candidates are and have methods of reaching them that are more advanced than throwing a business listing in an MLS.

business value

Another Word of Caution … Don’t Fall for the Old High Listing Price Trick

Industrial Auction companies are just as notorious for this shameful tactic as business brokers are.  They entice a business owner to sign by telling them that their business or equipment is worth far more than it actually is.  Just because they SAY it, doesn’t make it is so.  The old adage, “If it sounds too good to be true, it probably is,” is known the world over for a reason! Crap like that is so bad for both the industrial auction and the business brokerage industry.  It gives both a bad name.  By the time I am done with this series, I hope that my manufacturing readership will know enough that they can intelligently combat ANYONE giving them a line of B.S.  I want you to be able to accurately calculate the business value of your own business BEFORE the broker walks in the door.

In Conclusion

So … as I close my introduction to this new series, I encourage you to do your due diligence.  This is your life’s work.  Treat the decision to pick a manufacturing business broker the same way you would pick a heart surgeon.  If you’re smart you won’t be going to the ear nose and throat guy! Choose a specialist who has a following within the industry.  Ask how they intend to reach appropriate buyers … GET IT IN WRITING!   Don’t fall for the money upfront garbage.  If they are confident that they can sell your business, they won’t ask for upfront fees. And if they are not confident, they are not the right choice anyway. Contact us with any questions here.  We enjoy talking with manufacturing business owners.

About Frances Brunelle

Frances Brunelle is the founder of Accelerated Manufacturing Brokers, Inc., which specializes in the sale of lower middle-market manufacturing companies nationally. Fran and her team help to ensure the continuity of U.S. Manufacturing by transitioning ownership to the next generation of entrepreneurs. Recently Fran was named to 2020 Most Influential Women in Mid-Market M&A (Mergers & Acquisitions). Fran is also the host of the WAM (Women and Manufacturing) podcast, a Jacket Media production. Fran writes on topics that help manufacturing business owners prepare their companies for sale and navigate the sale process to ensure a positive financial result in support of their retirement.

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