Selling a manufacturing company involves a process of making many decisions. Choosing someone to represent you in the sale can be stressful. Often Sellers are so relieved at finalizing these decisions that they tend to take a step back after making them.
In this article, we’ll examine best practices when your company is on the market.
4 Critical Areas to Manage When Selling a Manufacturing Company:
- Maintaining and increasing sales
- Financial reporting
- Curb appeal and shop aesthetics
- Meeting with buyers
1. Maintaining and Increasing Sales:
Once your company is on the market, it’s not time to sit back and relax. This is a critical time that, for most, will affect their retirement. Both quality buyers and acquisition lenders want to see the company’s sales and profits in an upward trajectory, not stagnant or declining. Maintaining and increasing sales does not have to be a herculean or expensive effort. Consider the following:
- Touch base with customers who haven’t ordered in a while. Sometimes purchasing agents are moved to a different division or they have retired leaving a new person in that position who doesn’t know your company’s history of quality service. Reintroduce your firm’s services and history of quality and on-time delivery.
- Reach out to all existing customers and ask “what else can we do for you?” Often more difficult jobs are going to a different manufacturer because customers don’t know your capabilities. They should be highlighted to your customers at every turn. This includes existing capabilities and any new equipment acquisitions that increase your capabilities from either a volume or size perspective.
- If you have a great on-time or emergency delivery story of how your organization performed to save a customer’s rear-end, tell it to every other customer. It might just arrive on a day where another supplier ticked off the purchasing agent and you end up with new work.
The above efforts can be done via email or phone and on a shoestring budget. In the early years of my career, I was an industrial auctioneer. It always amazed me when auction clients would contact their customers to let them know they were going out of business. Orders would flood in from customers they hadn’t heard from in years. Why weren’t they doing that all along? The fact is, and would be confirmed by marketing professionals, you get what you go after, and if you go after nothing, you can expect to get exactly that.
2. Financial Reporting:
The first step in the process of selling a manufacturing company is a valuation of the company to determine the appropriate list price. This entails the sharing of at least 3 years of financials and tax returns with your intermediary. Many Sellers think they’re done with financial reporting once the company is listed. Nothing could be further from the truth.
Both buyers and acquisition bank underwriters will expect to see quarterly financials during the process. Once you receive an offer and are in due diligence, you can expect this request to be monthly.
Sellers who are not willing to provide these documents or don’t do so in a timely manner, lose deals and lose quality buyers. Quality buyers reason that if you can’t even provide an updated financial statement in a timely manner, they’ll never be able to get what they need to successfully transition the company to new ownership. There’s no way around this requirement.
If your internal financials are a mess because you don’t understand general accounting principles, you’ll need to get your CPA involved. Recently we had a client provide mid-year financials that showed the company’s net earnings substantially down for the year. As it turned out they expensed items that should have been on the balance sheet rather than the P&L. Once their CPA corrected what they’d done, the deal was saved.
3. Curb Appeal and Shop Aesthetics:
Buyers expect to see a well-organized and clean facility when they visit. Curb appeal matters when selling a manufacturing company as much as it does real estate.
At every turn, buyers are looking for pride of ownership, machine tools that are well cared for and a well-organized business. If two identical companies are on the market with equal financials, but one’s a mess and one’s well organized and visually appealing, buyers will go for the later. They’re always reading between the lines (or the mess) and asking, “what does this mean?” A mess means a company that is likely not well run, unorganized and will be hard to transition. It also means that the staff is used to not treating the equipment well.
4. Meeting With Buyers:
When meeting with buyers you want to express calm confidence, not desperation, when selling a manufacturing company. To do so, it’s critical that you do the following:
- Be forthright in all your communication, including your criteria for a good buyer and your desired post-closing role.
- Don’t talk down about your staff or demean them. Good leaders recognize that problems in the company are ultimately the leader’s responsibility for not correcting. Take responsibility for the bad as well as the good.
- Be honest about future opportunities, being neither overly optimistic nor pessimistic.
- Most importantly, stop talking long enough for the buyer to ask questions. If you keep talking without taking a breath, you look desperate rather than competent.
If you follow these 4 critical best practices when selling a manufacturing company, you’ll help to speed the sale process and likely end up with a better quality buyer. For more tips on preparing your manufacturing business for sale, sign up for article alerts here.