Retiring From Manufacturing – Five Reasons You Should Plan Early

5 Reasons Manufacturing Business Owners Should Plan Early for Retirement

In 2021, 54% of small business owners were planning for retirement. According to the Market Pulse Report published by Pepperdine University, retirement is the number one reason owners sell their businesses.

However, the same report shows that many owners are not properly planning for this event, which, for many in the manufacturing community, may be the largest transaction of their lives. The Q4 Market Pulse Report found that 61% of business owners engaged in little or no planning for the sale of their companies.

Why Early Planning Matters When Retiring From Manufacturing

If you’re retiring from manufacturing, here are five reasons you should begin planning early.

1. Early Planning May Help You Sell at a Higher Price

The value of a company isn’t just about a multiple of EBITDA, especially in manufacturing. Several factors can affect value. Read about 15 factors that affect a manufacturing company’s value.

Planning early means understanding what buyers look for in a quality manufacturing business and having the time to correct issues that might negatively impact value. Addressing those issues before going to market may allow you to sell at a higher price.

2. Early Planning Allows You to Take Advantage of Tax Strategies

An M&A tax specialist may know more than your local CPA about tax strategies surrounding M&A transactions. Planning early gives you time to seek out a true expert in the field.

For example, we recently referred a client to an expert firm to better understand their actual bottom line. The M&A CPA firm immediately identified tax savings of more than $300,000 that the local accountant didn’t believe the client qualified for.

Some tax strategies take time to implement, and planning early can help you understand and take advantage of those opportunities.

3. Early Planning Helps You Retire When You Actually Want To

Waiting until you’re ready to retire before beginning the sale process doesn’t take into account the amount of time a buyer may contractually require you to work after closing to ensure a proper transition.

For most manufacturing companies, six months to one year is the norm. You also need to consider how long it takes to market a company, negotiate a transaction, and allow the buyer to complete due diligence.

The entire process can take longer than you might think.

4. Early Planning Gives You More Control Over Your Exit

A controlled exit is usually a good exit.

Selling when you don’t have to means you’re negotiating from a stronger position. Waiting until a health crisis, economic disruption, or other unexpected event forces your hand can have serious consequences for the sale of your company and, ultimately, your retirement funds.

Planning early gives you more control over the timing, process, and outcome.

5. Early Planning Allows You to Take Advantage of Market Timing

There are points in history when the M&A market is more favorable than others. When quality buyers outnumber quality manufacturing businesses available for acquisition, competition among buyers can increase and create favorable conditions for sellers.

You can’t take advantage of those conditions if your business is not ready to go to market.

Planning early means understanding the M&A process, knowing what type of documentation will be required, and having your business prepared when the right market opportunity presents itself.

I’ve published a step-by-step guide to preparing your manufacturing business for sale.

The Best Time to Prepare Is Before You’re Ready to Retire

If you’re planning on retiring from manufacturing, planning early is one of the most important things you can do to position yourself for the best possible result.

For more tips, visit our manufacturing M&A Learning Center.