Once you’ve made the determination you’re interested in selling your manufacturing business, there is no better time to start searching for ways to boost the value and prospects for your business. Where you stand today does count for something, but both strategic buyers and private equity firms will be eager to evaluate how the business is expected to grow 5-10 years into the future. If the right moves are made to make a convincing argument that you’re leaving your business in better shape than you left it when you decided to sell, you’ll increase your chances of maximizing your market value.
1. Diversify Your Portfolio of Customers, Services or Both
Not surprisingly, when a buyer sees most of a business’ revenue coming from one or a select few clients, there is an immediate apprehension to invest. The risk from a lack of diversification is obvious, but very real and has the potential to sink an otherwise promising deal. The diversification risk is still relevant if most or all of the companies your business services are from the same industry. Diversification protects businesses as industries rise and fall (consider the opposite paths of the energy and e-commerce industries over the past several years). Diversification of services, meanwhile, opens the door to attract more customers and could make your business more lucrative to buyers with specific needs for certain services. Further, as risk averse as buyers are, they will be happy to inherit the benefits of a new, well-diversified customer base (or a connection to new industries).
2. Hire or Mold a Reliable Management Team
Arguably your most valuable selling piece, the management team you leave behind must be prepared to take your business to new heights. You must ask yourself how dependent the operations of your business are on your presence as a manager. If you believe your business could manage itself autonomously without your oversight, the more power to you. If you think your management team could not only run itself, but grow as well, then maybe you’re in an ideal spot to sell your business.
Creating a management team you can trust to succeed can be one of the most challenging tasks of the selling process, but it must be done to achieve the valuation you seek.
3. Have a Proactive Sales Strategy Prepared in Advance
Some manufacturing companies wait for buyers to approach them rather than the reverse, a practice known as order catching. This is one of the least effective ways you can use to boost the value of your business. Invest in customer and market development in order to open additional opportunities. Ask yourself, “is my business mostly receiving orders or are we pitching and winning opportunities?” Avoid remaining in a catching mindset.
Prospectus Vs. Valuation: An Important Difference
The prospectus is the document you will provide buyers detailing your business plan, recent performance, overall financial status, and other factors that could be used to predict the future growth and value of your business. The structure and goals of your company will be of particular performance, and it is through this strategy that you will sell the crown jewel of your business — your management team.
By contrast, a valuation is determining the fair market value of your business. This is a snapshot of your business in time and is good way for you to feel out how much your business might be worth in the open market. While this is certainly important, it does not weigh as heavily as your prospectus.
Selling is not about where you are; it’s far more about where you’re going to be.