Selling a Manufacturing Business – The Top Five Things Every Buyer Wants To Know

Selling a Manufacturing Business

Selling a manufacturing business presents challenges unique to the industry, most of which can be overcome with proper planning

In this series we will examine how BUYER’S view your manufacturing company for sale.  To obtain the best possible price for your business, you have to think like a buyer and have the ability to address all of their concerns.   In this article we will examine the top five things that every buyer wants to know about a manufacturing company that they are considering the purchase of.   In the coming months we will delve into each in more detail.  For now, start thinking about the following:

The Top Five Things Every Buyer Wants To Know:

1. What Are the Numbers?

To sell ANY business, you must be able to prove your numbers for the last 3-5 years.   Buyers want to see tax returns and financials.   Some small manufacturers divert money out of the company by having vendors pay them, their wife or their dog.  You MIGHT be saving on taxes, (if you don’t get caught), but your going to loose, big time, when it comes time to sell.  Many qualified buyers need to finance part of the purchase price.  They can’t get financed what they can’t prove.  By not having all the income on the books, you’ve severely limited your buying pool.   Another aspect of this is to have everything COMPUTERIZED!  It amazes me that in this day and age folks are still doing accounting manually.  This to will impact price.  Buyers view manual records as not being as reliable as computerized.

2. How Big Is Your Customer Base?

Do you have all or a majority of your eggs in one basket?  If one customer is responsible for over 50% of your income, you will be in trouble when its time to sell.   It doesn’t matter how rock solid you tell a buyer the relationship is between you and this customer.   Unless there is a contract in place, there is no guarantee that the customer will stay with a purchasing entity.    The lack of certainty will be factored into a buyer’s offer to purchase.  Buyers prefer a diverse customer base in both numbers and industries serviced.

3. Will You Assist With Transition?

How do you, the Seller, help your company transition to a new owner in a manner that ensures customer retention?  If you are a manufacturer that only wants to provide a few weeks of training or transition assistance, you are shooting yourself in the foot!   Buyers view the lack of willingness to assist as a huge red flag.   They view that as you wanting to “take the money and run”.   That being said, sellers don’t have to be married to a buying entity.  It is entirely appropriate to provide help as part of the purchase price for a reasonable period of time, then if the company needs more assistance, it can be done on a consulting basis for a pre-determined fee.

4. Does This Business Have a Unique Product or Service?

Manufacturing companies that have a unique product or service will sell higher and faster than a job shop.   Small manufacturing company owners are notorious for thinking that THEY can build a widget BETTER than anyone.   News flash folks, there are a lot of competing companies for sale which are headed by someone just as smart as you.   A buyer with cash to spend will gravitate to the one that has something truly unique, that perhaps no one else has been able to duplicate.   Having a unique product line to pass to a buying entity is GOLDEN!

5. Will The Primary Business Survive?

Of all the things buyers look at, this one is, in my opinion, the MOST important: "Will the primary business survive."  It can trump all the others.  Here’s why.   Your numbers might be incredible and provable.  You might have a hundred different customers.  You might be willing to assist with transition that is acceptable to the buyer and have the best in class of a product on the market.   If the product was a typewriter in the early 1980’s, guess what, you’re screwed!   New technology changes things and sometimes wipes out entire industries.   How can you help this?  You can’t, but you CAN be prepared for change.  Pay attention to what is happening around you!  Stay on top of new inventions and products coming to market.  Constantly ask yourself, “How will this affect my business.”   Don’t’ stick your head in the sand and say that it can’t happen in your industry.   Tell that to the manufacturers of printing machines right now, or the post office, or the travel agents.

We will look at each of these Top Five Things That Every Buyer Wants To Know when buying a manufacturing company in more detail each month.   If you are thinking about selling your manufacturing business, check out your competition.  What do they do, where are they priced and what are they offering for the money?  Start planning an exit strategy a decade in advance.  Yes, I said 10 years.  This may be the biggest financial transaction of your entire life and necessary to fund your retirement.  Early preparation in business will produce a result that you’ll be happy with!

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