According to Investopedia, approximately 10,000 Baby Boomers are retiring each day. If you’re one of them, you might be thinking of selling your manufacturing company so you can enjoy your golden years in comfort.
At the same time, perhaps you’ve spent the past decade building your company and are ready to sell it so you can take on a new challenge. Regardless of your reason for selling your manufacturing company, if you want to get a good deal, there are several factors to consider.
Tax legislation can help create favorable conditions for selling your company. For example, as Industry Week reports, the Tax Cuts and Jobs Act of 2017 allowed corporations to bring money that had been stuck overseas back into the U.S.
In addition, the corporate tax rate was lowered from 35 percent to 21 percent. These two factors combined have resulted in more liquidity for businesses, which in turn has made it more feasible for them to make acquisitions. And with more buyers, the market has become more competitive — so sellers can increase their asking prices.
Since nearly all buyers need financing to purchase a business, it’s also important to consider the current interest rates on business loans.
For instance, as Financier Worldwide points out, when interest rates rise, it’s more challenging for buyers to get the right amount of financing because they have to calculate the sum of the interest rates over the long term in addition to the loan.
When interest rates are low, it becomes more affordable to finance an acquisition with debt — so that makes buying a manufacturing company more feasible for more buyers.
The Condition of Your Manufacturing Company
The condition of your business will also affect its value. First and foremost, thanks to the rapid technological advancements of Industry 4.0, manufacturing is changing with leaps and bounds.
According to Forbes, a growing number of companies are transitioning to smart factories where sensors collect data about the production process and transmit it to the cloud for analysis. Cloud computing is utilized for analyzing the production process, as well as to implement robotic solutions.
By means of augmented and virtual reality, manufacturers can create special environments where they can test changes and new ideas before doing so in the physical world. And digital twins collect data about the equipment, making predictive maintenance easier than ever before and contributing to the longevity of machinery.
It should come as no surprise that a buyer looking to purchase your manufacturing company will consider how much-advanced technology is already implemented. If your production methods are outdated, the buyer will want an accurate estimate as to how much of an investment is needed to bring the facility up to date.
On top of that, it’s also important to think about whether or not your staff is trained in new technologies — and if not, how much it will cost to bring them up to speed. Clearly, the more of an investment is needed, the lower any bid will be.
Additionally, a buyer will also want to know the average age of your workforce. If the majority of your employees are reaching retirement age and you haven’t started training a new generation of workers, that will also impact the price.
Your Ability to Transition Properly
In manufacturing, transitioning a company to a new owner can be a lengthy and stressful process. You need to navigate all of the complexities of the deal while at the same time ensuring that operations continue to run smoothly — without any loss of profits.
In order to do this, you have to be in good health. Nobody knows your company like you do — but if you’re sick and can’t oversee the transition, you could wind up doing the business more harm than good.
As PwC advises, you should employ at least one transition advisor to support you throughout the process. That way, you have expert help where it’s needed and still retain enough energy to focus on your core responsibilities.
Ensure Favorable Conditions
It can be an emotionally and professionally difficult process to sell the manufacturing company you worked so hard to build. That’s why it’s worth doing your best to ensure favorable conditions before making the leap.
If you try to sell when the economy isn’t doing well, when interest rates are high, when your factory isn’t up to date or when you’re unable to help the business transition, the risk is high that you won’t get the price you hoped for.
In contrast, if you sell when economic conditions are favorable, when your company is in good shape and when you have the energy and focus to be actively involved in the transition, you stand a much better chance of finding a buyer who’s willing to pay what you’re asking for. And after all your years of hard work, don’t you owe that to yourself?