So after understanding Why 2021 is the year to sell your Manufacturing Business - here are the steps you should take to make the most of your business sale:
Advice for all manufacturing businesses contemplating a sale within the next 5 years:
>> Watch your capital investments. Manufacturing is an asset-heavy business. But be mindful what is on the balance sheet, even several years out. If you’re continuing business as usual and initiate a new lease heavy equipment, it can be a blow to your balance sheet.
For example, if you have $500,000 of leased equipment on your books, you’d get $500,000 less on $3,000,000 sale. If you buy a piece of expensive equipment, it may not impact your valuation (business looks good with that new equipment!), but will impact the net proceeds to you at closing (buyer doesn’t want to assume the current lease on that machine- you have to pay it off with your proceeds). Owners need balance of running the business while keeping an eye on valuation. If you can continue to be successful without brand new equipment, it’s a big plus for the money you’ll take home from the sale of your business.
>> Keep inventory clean. Don’t keep so much inventory on your books if not necessary. It just complicates valuation. Obsolete inventory? Get rid of it! Too much inventory? Cut it down. While it might be advantageous to buy inventory in bulk for a lower price for a business you plan to run for the next decade, it is not helpful to an owner looking to sell. Keep only what you need to keep business running smoothly in the short term.
>> Clean up your warehouse or factory. Just as when selling a home, first impressions matter. It’s fine to have dirty dishes in the sink and an overgrown lawn when you’re planning on staying - but if you’re selling, you want it neat and tidy and with a fresh coat of paint. The same goes for manufacturing facilities. Aesthetics matter. Is it organized? Are workspaces clean? Are their lines on floor to indicate work flows? Savvy buyers can tell a lot from looking around if a business is running lean and efficiently. If there is chaos and tools on the floor or obvious safety hazards, it’s a red flag that will bring down price. Get some fresh eyes to assess your space.
>> Have contingency plans. If 2020 showed us nothing else, it taught us to be flexible, and manufacturing was no different. The manufacturing businesses that thrived were those that were already COVID-proof OR those that could pivot quickly. One client of mine had the best year ever, as they were able to change from producing for retail and restaurant sectors to making COVID PPE. If you can show you can service multiple industries, you will be more valuable. Besides being able to change production, businesses should have backup suppliers and plans to keep a steady workforce in challenging times. Buyers will look very favorably on any business that is already mindful of steps to take in the event of another COVID-type business pause.
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