So, you’re ready to sell your manufacturing business.
If you’ve come to the conclusion that it’s time to sell, you’ve likely given the situation a lot of thought. While this decision is exciting, it’s important not to rush into it. There are some final steps you can take to get the value your business deserves while maintaining a steady production flow.
We understand that business owners often spend lifetimes building businesses, especially in the manufacturing field. Taking your time on the final pre-sale steps is important for you and your employees. Business owners can take unique routes to achieve a successful sale price. Common practices include business valuations and guidance from business brokers.
No two business sales look identical. But, there are six steps that most manufacturing companies can follow when leading up to a sale. We’ve curated these steps to guide owners to a sale price that reflects their hard work and effort. Preparation and an increased value lead to an easy transition and a satisfying exit.
In this blog, we’ll explore the crucial steps manufacturing business owners should follow before negotiating a sale. Sometimes businesses need a few tweaks to improve their value. Brokers like Uscita are here to help you exceed your potential and we’ve helped to sell dozens of manufacturing businesses in the North-West. Continue reading to find out more.
Looking for a handy checklist that will walk you through all that’s needed when preparing your business for sale? We’ve created one with all you need – and you can download it here.
1. Maintain your hard assets
When you’re gearing up for a business sale, you need to continue maintaining the business. Though your thoughts might be on winding down, keep all manufacturing assets up to a high standard. This is especially important for hard assets, as these can bolster the value of your business.
Common hard assets include production machinery, property, company vehicles, and even office furniture. Physical assets are essential to manufacturing businesses, and you’ll want yours to look as polished as possible for your buyer. Keeping your machinery and production equipment at a high standard will ensure production can continue without a hitch after you leave.
Take time to check your hard assets. If anything needs a repair or an upgrade, don’t put it off. You don’t want any faults or issues to disrupt your manufacturing process. More importantly, you will have to provide warranties on the maintenance of key manufacturing equipment to the buyer confirming that all have been well maintained and serviced. If something breaks down and you can prove your diligence in this matter, then you’re not liable for any compensation. If you can’t provide records of your ongoing maintenance, you may find a claim coming your way.
Effective hard asset management allows you to use them to your advantage. If you have neglected certain assets, don’t worry. You can maintain anything that is not up to scratch before the sale. This will benefit your sale and the revenue for the business. Planning ahead allows you to work out which assets are ready for sale and which aren’t.
Continue to maintain your assets up to the sale date. This applies to all assets, even the well-maintained ones. Don’t drop the ball before you’ve handed over the company. This is goodwill for the buyer, and it also leaves all bases covered in terms of product output. Remember, you want your company to be at its best before and after the sale to ensure your manufacturing process is stable.
2. Plan to stay innovative
Like keeping assets maintained, you should also continue planning for the future of your manufacturing business. An innovative business plan offers a roadmap for future buyers, and for the production of your goods. This also proves the business will continue to thrive and generate revenue. Potential buyers want to see possibilities and profits in your plan.
Business sales are all about showing your business’ worth. Value isn’t only derived from tangible assets; the potential to make more money is important too. This means you need to know the future of your production and manufacturing goals. Remember, buyers want to take your business on and profit from it. Your business plan must be attractive and well-thought-out for the best results.
Get clear on the future of your business. Where do you see your business heading when you’ve exited? The more details you can provide, the better. You want your innovative plan to be legible to new owners who don’t know the business as well. This means getting clear on your products is essential. Consider whether you want to increase the scale of production, create new consumer products, or downsize.
Potential buyers look for companies that they can take over easily. Imagine your potential buyer hasn’t operated a manufacturing company in your niche before, what would they need to know? A detailed and extensive plan will attract higher sale prices. Business transactions can be stressful, and buyers will pay more for a stress-free experience.
If you haven’t already, consider creating a comprehensive business exit strategy. This formal plan lays out the future for general production, asset management, shares, and marketplace positioning. This gives the new owner all they need to run your company.
Business exit plans aren’t just for achieving a high sale price, though. Exit strategies might also cover potential health issues, family crises, or needing to leave for a last-minute reason. You may already have an exit plan. If so, this can be adapted to forecast the business’ future plan.
Much of a business exit revolves around polishing your business for future owners and for the future of your production. At the end of the day, buyers look for an organised business with high potential. A future plan assists you in getting the value you deserve.
3. Comply with regulations
When planning a manufacturing business sale, complying with regulations is essential. Contracts and paperwork can slow down your sale, especially if they’re not up to date. Completing your own due diligence will put you in good stead for a higher valuation and easy sale. Regulatory compliance also ensures any manufacturing process will continue smoothly during the exit.
Take time to assess all relevant regulations. If you realise that some aspects of your business aren’t up to standard, don’t worry. It’s better to find out now rather than later. If you complete your due diligence early, you’ll have more time to ensure all regulations are up to date. Don’t skip this step when selling!
When checking regulation compliance, make sure you include your business premises. Often, lease agreements get forgotten. Take time to check through all relevant data. It can be helpful to complete this step with trusted colleagues. A legal party or business broker can also provide helpful advice. Consider working with others to get an extra set of eyes on your regulations.
Complete these checks before your exit or while creating your exit plan. All business exit plans need due diligence. This includes having necessary documents ready to go, checked, and filed correctly. Start your due diligence process sooner rather than later to ensure a smooth transition.
Regulatory compliance may not be at the forefront of your mind when selling. Yet, manufacturing buyers will enquire about this subject. Always prepare if you want to maximise your business’ value and maintain a steady production flow. Extra steps you take to ready your business are visible in the sale price.
Knowing your business complies with regulations reduces stress. If a satisfying exit is your goal, add this step to your list. Nothing is more frustrating than having to re-work your compliance mid-sale. At worst, this can put buyers off too.
4. Have a healthy cash flow
Did you know your cash flow supports your business sale? With so many factors to consider leading up to a business sale, it’s easy to ignore certain aspects. But, you should always remember a healthy cash flow.
Cash flow refers to the money that moves through your business. It includes revenue movement and expenses, meaning you must scrutinise each monetary aspect. When assessing your cash flow, look at invoices, payments, profits, seasonality, and stock.
Other areas to consider include any obsolete stock. If you have old stock lying around, you want to sell this off and get the cash back into your accounts. There are many ways to do this, such as selling on second-hand websites. If your stock is very old, you might take a loss on the price. It’s always better to regain some money, rather than none.
Common stock problems for manufacturing companies include raw materials and finished stock. Many have materials ready for ‘Just In Time’ orders. Explore whether you can minimise these materials before the sale. This will increase your value and cash flow. Buyers don’t want low-value stock in possession when they take over the company.
Many sellers assume old stock won’t impact cash flow and value. But, potential buyers will ask to look at the obsolete stock. If they find damaged or slow-moving items, your value could decrease. Low-quality assets can damage your reputation. This might affect how other potential buyers see your business. The best action here is prevention. Assess your stock and cash flow together sooner rather than later.
Buyers tend to set absolute budgets when searching for potential companies. These budgets include working capital. This capital helps to proceed through the first few months of ownership. Remember, the buyer wants to protect themselves from losses too.
A managed cash flow will reduce the working capital needed. This results in a buyer who doesn’t have to hold back and a higher sale price – great news when you’re selling. You want prospective buyers to feel as comfortable as possible when taking over your accounts. A lack of risk and a secure cash flow is vital.
If your aim is to raise your value before your sale, don’t skip cash flow management. For a manufacturing business, a well-managed cash flow supports the value of your business and the reliability of your production.
5. Protect your intellectual property
We’ve discussed the importance of hard assets and tangible property. But, these aren’t the only assets you should be examining. Protect and examine your intangible assets and intellectual property in the pre-sale process.
If buyers are in a rush to sell or experiencing push factors, this step might be missed. Due to the stress of a last-minute sale, buyers might rush the process and skip to the negotiation table. Yet, this is one of the most important steps to take. Your intellectual property is an important mark of your time at the company. Don’t ignore this when preparing your company.
Valuable intellectual property can raise the value of your sale. This can include trademarks, patents, copyrights, or similar content. Before you proceed to a satisfying sale, consult legal advice for your property. A solicitor can help you protect and transfer legal rights with ease.
Legal counsel is important in all sales. But, it’s especially crucial if you want to keep rights to the intangible assets after your exit. While this might not apply to all owners, it’s a step that needs to be considered. A licensed solicitor can help you navigate this process and strike a deal with your buyer.
Ensure you work with an experienced professional, as this will save you time and stress. Commercial solicitors are the right choice during business exits. Though their fees are higher, their help pays off in the end. If you’re unsure where to start, a business broker can point you in the right direction.
Protecting your intellectual property is a vital pre-sale step. While much of the sale process focuses on the buyer, you can’t forget your protection too. Owners deserve to leave with a high-value price and the knowledge that their property is safe.
6. Get an accurate business valuation
Finally, an accurate business valuation is your best friend. If you’ve spent decades of your life curating your business, make sure you do your hard work justice. Knowing your value can get you the result you want from the sale.
A professional business valuation is a necessary step for all business owners. This process calculates the financial value of your company as it is now. Valuations take into account all aspects of the business and give unbiased results. These aspects include tangible assets, intangible assets, revenue, employees, and potential for expansion.
Business owners can complete a business valuation alone. But, we advise most owners to work with an external provider. Professional business brokers can provide valuations not only based on your financial performance but also reflecting the current sales market and buyer trends.
A valuation doesn’t only inform you about your business. It’s also a tool you can use to achieve a fair sale price. Entering negotiations with value knowledge ensures a great price. Lack of knowledge can lead to lower sale prices. Also, knowing your business value will inform you about what buyers are looking for. This knowledge allows you to angle your business to relevant buyers.
If you’re ready to start your manufacturing business valuation, consider various approaches. The four common approaches include cultural, asset-based, market, and income approaches. When working with a professional broker, they can tell you which route to take.
Valuations are also an important step for businesses. Sometimes owners realise that their value is lower than imagined. This isn’t a negative, though. If you find your business value is lower than expected, a good broker or business coach will work with you to increase it.
Business owners sometimes commit an extra few years to work on the business. Alternatively, owners can inject more investment into the business or re-arrange their future plans. Each method will help you raise your sale price before negotiations.
The business valuation process will differ depending on size, revenue, and sector. But, this is one step business owners shouldn’t ignore.
Achieving the sale price you deserve is important. Saying goodbye to a business you’ve worked with for years can be emotional. But, with a satisfying sale price, you can leave on happy terms.
The six steps listed in this article are here to help you get the price you deserve. Each business will navigate the steps differently. Yet, it’s helpful to use them as a general framework. Start your planning with these tools if you’re unsure where to start.
You might also want to consider working with professional business brokers too. If it’s your first time selling a manufacturing business, you might need a helping hand and Uscita is here to assist you. Professionals can guide you towards an exit with experience in the field. Business brokers, like Uscita, can help you throughout the process or for individual steps. Ready to remove the weight from your shoulders? Professional assistance leaves you with more time and efficiency.
Don’t forget to complete your business valuation. There are many helpful steps in this article, but if you only take one piece of advice, make it step six. Nothing gives you more knowledge and power than a professional valuation. This number can inform your future plan, exit strategy, and sale price too.
Selling a business can get messy. If you want to organise your thoughts, start creating a comprehensive plan. However, if you don’t have time, consider using a checklist. Uscita offers a free Checklist for Selling Your Business PDF. Designed for owners, this document can help you start your exit journey.
If you’re new to business sales, don’t worry. Business exits can be challenging and stressful. But, that’s where Uscita’s experience comes in. We’ve been helping companies in the manufacturing, B2B, and engineering space for decades. With a team of expert brokers and exit strategies, we’re here to help.