Manufacturing

Manufacturing company owners who plan to sell their enterprise to an outside, third-party must take a hybrid approach in their strategic exit plan. In combination with mapping the value of the entity, or benchmarking, an owner must ascertain other aspects of the business that differentiate it from the pool of existing participants.

Many small, closely-held job shops have slim margins and high costs. Therefore, the company must be seen not only as an investment vehicle but one that can provide a living wage for a buyer. Owners desiring to sell their manufacturing company should consider growing the business’ intangible value so that a future acquisition (synergistic or otherwise) significantly exceeds the value of the machinery and equipment.

  • Ability to purchase new machinery: Does the company stay abreast and is the company able to maintain technological trends?
  • Bad debts, uncollected or lost accounts: This is a significant problem with job shops. How are these issues overcome so that the expense rarely occurs?
  • Certification: Is the company ISO certified (preferred) or ISO compliant?
  • Clientele and diversity: Who is it comprised of (government, commercial) and is it transferable? A diverse base enhances intangible value.
  • Competition: If applicable, how does the company overcome competition from foreign (overseas) manufacturers who have substantially less production costs and expenses?
  • Contracts: Do they exist and are they transferable to an unrelated new owner?
  • Employee benefits: If benefits are offered, is the company able to maintain the expense?
  • Employee retention: What is the turnover rate and how does the company retain productive and experienced employees?
  • EPA, EEOC and workers’ compensation claims: Has the company experienced any significant litigious claims/issues?
  • Experience of management and personnel: Is management and personnel certified and/or experienced journeymen?
  • Job costing: Does management track the cost of productivity per employee and per machine to assess profits and future growth?
  • Marketing and new sales techniques: How is new business generated and how are existing clients retained?
  • Union affiliated: In some regions, union affiliation drives value down.
  • Working capital: Does the company maintain a sufficient ratio of sales to working capital? Sufficient working capital is imperative for a manufacturing operation as it implies effective operations management and an adequate turnover of receivables and inventory.