The right timing for selling any manufacturing business will vary from owner to owner, but there are still some underlying best practices in most cases. Often, an owner will personally consider selling the business when nearing retirement age and begins preparing to pass off ownership, management or both to a willing buyer. In other cases, the market might be favorable for selling or the business itself is in the envied position of long-term growth. Whatever the case, what selling should not be is an arbitrary, knee-jerk decision made without careful long-term planning and consideration. The preparation for the selling process will often take at least two years, so it’s imperative that manufacturing business owners are thoughtful before they close a deal.
If the Business Is In Decline, Don’t See it as a “Sell Now” Time
When owners see their business is in a pattern of decline, the instinct can be to sell to cut their losses. This is not a wise approach to selling any business, especially a manufacturing business. Selling at the peak performance of a business would be a more effective strategy, but the best tactic of all is to create the prospect of growth. The value of a business itself will grab a buyer’s attention and get an owner in the door, but the greater incentive — one that will maximize the return on sale — will be the potential performance of the business five or ten years down the road. This could mean expanding the customer base (i.e. not having all the eggs in a few baskets), adopting new services, revamping the management team, investing in capital equipment or integrating new technology for project management and other operational needs. While not every business in a pattern of decline is in a position to quickly recover (if at all), waiting for the moment the business begins to show signs of sputtering is never the best option.
If Owners “Are” the Management Team, They Have Some Work On Their Hands
If owners are heavily invested in the management of their company to the point the business would greatly suffer without them, the business is not in an ideal position to sell. The quality of the management team is the keystone for any deal made with a buyer, so nurturing quality management should be an absolute priority if selling the business is a near-term goal. Even if the business is in its most successful period, buyers will be interested to know how the business will proceed without its owner and manager. If the owner decides to stick around after the sale in a management position, having the reassurance that the owner isn’t irreplaceable will give buyers far more confidence in the deal. Management holds significant weight with both private equity firms and strategic buyers, so this critical detail can’t be avoided.
Know Where the Market Stands
While this might sound obvious, the market isn’t always favorable for selling even if a manufacturing business is firing on all cylinders. At the present time, acquisitions of manufacturing business are frequent and the market is highly favorable for small or medium-sized businesses to consider a sale. This won’t always be the case, but attempting to predict the market is part of the battle. The decline of the oil and gas industry over the past two years has hurt many niche manufacturers, but the rise of ecommerce has presented manufacturers with new opportunities. Well-diversified businesses, ones that can adjust more easily based on changes in the market, will always have a leg-up over the competition. The wider an owner can make the window to enter the market, the better chance the business has of striking the right deal.
So How Do You Know If You’re Ready to Sell?
No manufacturing company is the same. Each one has a unique mix of location, customer base, industries served, financial standing and management composition. As an owner, you know your business better than anyone, so honesty will get you farther than idealism when you feel the time has come to sell.
If you think you’re truly ready, go through the mental checklist:
- Is the market favorable now and does it project to change in 2-3 years?
- Is my company financially healthy and in a position to grow? Am I in financial decline?
- Could my current management run and grow the company without me?
- Is my customer base and capital equipment where I want it to be?
- Am I prepared to go through the selling process?
If you think you’re ready to sell, you can read more about the selling process in our blog.