Retiring From Manufacturing – Five Reasons You Should Plan Early

Retiring From Manufacturing
⏱ Reading Time: 2 minutes

In 2021, 54% of small business owners were planning on retirement.  According to the Market Pulse Report published by Pepperdine University, retirement is the number one reason owners sell.  However, the same report shows that owners are not properly planning for this event, which for many in the manufacturing community is the largest transaction of their lives.  The Q4 Market Pulse Report showed that 61% of business owners engaged in little or no planning for the sale of their companies.  If you’re retiring from manufacturing, here are five reasons you should plan early.

1. May Allow You to Sell at a Higher Price

The value of a company isn’t just about a multiple of EBITDA, especially in manufacturing.  Several things can affect value.  You can learn about 15 things HERE.  Planning early means understanding what buyers look for in a quality manufacturing business and having the time to correct things that might negatively impact value, thus allowing you to sell at a higher price.

2. 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 allows you to seek out a true expert in the field.  For example, we recently referred a client to an expert firm to understand their actual bottom line.  The M&A CPA firm immediately found tax savings of over $300,000 that the local accountant didn’t think the client was qualified for.  Some tax strategies take time, and planning early will help you understand and take advantage of them.

3. Means You’re Not Still Working When You Want to be Retired

Waiting until you’re ready to be retired to begin planning doesn’t consider the amount of time a buyer will contractually require you to work post-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 and for the buyer to complete due diligence.  The entire process can take longer than you might think.

4. Gives You More Control

A controlled exit is usually a good exit.  Selling when you don’t have to means you’re negotiating from a position of power.  Waiting until a health crisis or a pandemic to plan can have devastating consequences on the sale of your company and thus your retirement funds.  Planning early gives you more control.

5. Allows You to Take Advantage of Market Timing

There are points in history when the market is more favorable than others.  We are currently in one of those times now, truly a “Seller’s Market.”  Quality buyers outnumber quality manufacturing businesses on the market, which means there’s competition to buy, and companies are selling at historically high prices.  You can’t take advantage of this if your business is not ready to go to market.  Planning early means understanding the M&A process and what type of documentation is required.  I recently published a guide on preparing your business for sale, which you can view HERE.

If you’re planning on retiring from manufacturing, planning early is the key to getting the best result.

For more tips on manufacturing M&A, visit our manufacturing M&A blog HERE.

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