To achieve a great price and sell on your terms with no regrets, preparation is the key.
Being prepared gives you the greatest chance of selling your manufacturing business successfully. You will need to think of things such as, how long it will take to sell, what type of buyer you want, and what you will do after the sale. There will be many questions, and we are here to guide you through this process. Starting with:
How to Prepare to Sell Your Manufacturing Business:
- Step 1 – Determine the Value & Appropriate List Price
- Step 2 – Develop Marketing Materials
- Step 3 – Determine the Target Market
- Step 4 – Vet Buyers Both Professionally & Financially
- Step 5 – Initial call with a Buyer and Seller
- Step 6 – Submission of an Indication of Interest (IOI)
- Step 7 – Buyer Visits Manufacturing Plant
- Step 8 – Post-Visit Q&A
- Step 9 – Submission of a Letter of Intent (LOI)
- Step 10 – Due Diligence
- Step 11 – Purchase & Sale Agreement Negotiation
- Step 12 – Closing and Transition
What Are the Main Factors to Consider when Valuing a Manufacturing Company
- Sales and profitability trends, net earnings trajectory, and gross margins.
- Number of years in operation
- Condition and age of equipment and its value
- Technology (and potential for obsolescence)
- Competition
- Industry trends
- Number of products and services offered
- Capacity limitations and levels that would trigger the need for expansion
- Maintenance capital expenditures
- On-hand inventory and work-in-progress
- Backlog Orders
- Raw materials
- Lease or own real estate
- Marketing Strategy & Profiles
The Main Factors Affecting a Manufacturing Business Valuation
- Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) or SDE Seller’s Discretionary Earnings,
- The company’s dependence on the owners & willingness to transition.
- Customer and sector concentration.
- Length and stability of customer relationships.
- Barriers to entry
- Patents and unique technologies.
- Danger of new competing technologies.
- Need for capital expenditure to maintain sales.
- Supply & demand in your sector.
- Age of labour force and access to future skilled labour.
- Standard operating procedures and industry certifications.
- Value of machine tools – amount of collateral for acquisition loan.
- Debt service coverage ratio.
- Geographic and aesthetic desirableness of business location.
Training Period & Non-Compete Clause
In addition to the training period clause, your purchase contract will likely include a non-compete clause as well. A non-compete prevents you from competing with the buyer of your business for a designated period in a specified geographic area. With a short non-compete, nothing stops an owner from selling the business and quickly starting a new business in the same industry/area. You probably have no interest in doing so, but it’s an understandable concern for buyers and need to be addressed. They’re worried that you might pull employees, previous clients, vendors, and businesses away from the company you just sold.
Why choose Tim McCauley?
Tim has worked with several manufacturing businesses throughout NSW assisting them in restructuring and then finding suitable buyers. The scope of the work ranged from $3m turnover to $30m turnover..
When it comes to manufacturing, import and export trade, Tim has first hand experience, he owned and expanded his own import and export business with a staff of 20. The Company had a focus on European homewares and serviced national accounts and well as over 1,000 retailers across Australian and Asia. Tim served 4 years as a board member of Australian Gift and Homewares Association. His group continues to work with numerous import/ Export companies throughout Australia.