After years of investing your time and effort to grow your manufacturing business, you may want to cash in on all of your hard work at some point.
Due to the high value of machinery and equipment, and the impact of fast-moving technologies on the sector, selling a manufacturing business can be more challenging than the sale of the average service or retail business.
But with the right preparation, you can make your business more appealing to potential buyers and increase the chances of securing a quick sale at the right price.
Consider the Reason Why You Are Selling
Why are you selling?
This is something you want to ask yourself before you commit to selling your business. It’s also one of the first questions a potential buyer will ask you.
If financial problems are contributing to your decision, you should consider your options. Even if you are in appears with the ATO or have been rejected for a business loan, there are several business finance solutions to help you access funding.
For example, Asset Finance can help you access the capital you have tied up in machinery and equipment to improve your cash flow and help the business become more profitable.
You’ll also need to consider how selling your business will impact your tax and employee liabilities. For more information on the implications of selling your business, you can read the guidance on the Australian Tax Office website.
Start Preparations for the Sale Well in Advance
It’s never a good idea to rush into a sale. Try to leave yourself 12 months to get organised before you put your business on the market.
This will give you enough time to prepare your financial records, business processes, and other paperwork. You’ll be able to conduct repairs, upgrade old equipment, and make the business more appealing to buyers.
This preparation will also help to ensure a smooth transition when the new owner takes over.
Document Your Mission Statement and Businesses Processes
Before looking for a potential buyer, you should define what you do and how you do it. These are the questions any potential buyer will want to know.
If you run a multi-faceted business or provide services to clients in multiple industries, this can be more difficult to answer than you might first assume. Drafting a mission statement for your business can help you define precisely what you do.
You’ll also want to document your processes to illustrate how your business operates. Potential buyers want to see how you generate profit. This is especially important if your potential buyer is unfamiliar with your area of manufacturing.
Documenting your processes shows a clear roadmap of how the business will continue to operate with the new owner in charge. Your business model should be transparent and replicable without you running the operation.
Ensure Your Facility Is Clean and Organised
Every manufacturing workplace is messy compared to an office or retail store. But first impressions are vital no matter what business you are selling.
In preparation for putting your business on the market, conduct any repairs you may have been delaying and clean every area of your facility to make it more appealing to potential buyers.
If you are using outdated or dilapidated equipment, consider upgrading to increase the sale value of your business. The money you spend on new equipment can pay for itself with an increase in the valuation of your business.
There are a range of finance solutions to help you raise capital for repairs and upgrades. With equipment finance, you can borrow up to 100% of the cost of new or second-hand equipment, and with flexible repayment terms.
Take pride in the appearance of your business, and maintain a clean and organised facility, especially before any viewings from potential buyers.
Make Sure All Financial and Tax Records Are in Order
Every potential buyer will want to see your financial and tax records are above board and up to date. This is especially important for the manufacturing industry, where turnover of inventory and outgoings are higher than in other sectors.
You’ll need to show your latest profit and loss statements and tax records before any buyer will submit an offer for your business.
Here’s a list of relevant documents you should prepare:
- Tax records
- Profit and loss statements
- List of customers and revenue generated
- Accounts receivable
- List of equipment and service records
- Insurance policies
This information should only be shared after the potential buyer has signed a confidentiality agreement.
Licences, Permits, and Compliance
You will need to demonstrate that your business meets all its legal and government compliance obligations, and how the new owner can maintain compliance once the business has been transferred.
The most straightforward way to demonstrate compliance is to show a potential buyer what you are currently doing to meet your obligations. That includes how you dispose of waste and any toxic materials, any certification or permits related to what you produce, and safe working protocols.
Your obligations can vary depending on the goods you manufacture. However, you should make sure all licenses, permits, and compliance paperwork is up to date and ready to show potential buyers.
Think Like a Buyer
Try to analyse your business as if you were interested in buying a manufacturing business. This will help you to identify areas of concern and highlight anything you may have overlooked.
Think about the risks that are involved and what would make you feel more comfortable purchasing the business. Every buyer wants to know how they can continue to make a profit and earn a return on their investment.
Potential buyers will always favour manufacturing businesses that have well-kept financial records, a clean and organised facility, and documented processes and systems to show how the business operates and turns a profit.
How to Value Your Manufacturing Business
Multiple factors influence the value of your business and how much a buyer will be willing to pay. The Australian government has a guide detailing the different methods you can use to value your business on the Business.gov.au website.
Due to the high value of assets and the nature of business operations, manufacturing companies can be challenging to value.
It’s best to seek a valuation from a professional with experience valuing businesses in the manufacturing industry.
A valuer will analyse:
- Sales revenue
- Growth trends
- Customer List
- Business processes
- Barriers to entry
- Debt service coverage ratio
A valuer will take all of the above factors into consideration before deciding on valuation. This will help ensure that you don’t leave money on the table or set an unrealistic price when negotiating the sale for your business.
Finding a Buyer
You will typically need 5 to 10 qualified buyers to show interest before you can expect to find a buyer and complete the sale.
If you value your business at less than $2 million, an individual will be the most likely buyer. For a company valued at $2 million-plus, you will usually need to find a corporate buyer.
To find individuals, consider advertising your business on online business marketplaces. You should also consider using a business broker. A business broker is an expert at buying and selling businesses. They can help you to prepare your business for sale and handle the negotiations with any potential buyers.
If your business is valued at $2 million-plus, you may want to enlist a qualified investment banker to help you find a buyer and negotiate the sale. You will usually need to pay a fixed fee and percentage of the sale value, but they will help you negotiate a higher price when selling your business.
How Long Does It Take to Sell a Manufacturing Business?
The timeline for the sale depends on your business, the current market, and the broader economic conditions. As a general rule, the higher the value of the business, the longer it will take to find a buyer and negotiate a sale.
This is due to the amount of risk involved for the buyer, and the smaller number of individuals or corporate buyers that can afford the asking price.
You can look at how long similar businesses have been on the market to get an idea of the timescale, but the unique circumstances of your business will dictate the speed of the sale.
As with all high-value asset sales, patience is required to find the right buyer with the right offer.
Finalise the Sale Agreement
Once you have found a buyer and completed negotiations, you will need to finalise the contract and transfer your manufacturing business to the new owner.
The Australian Government has a useful checklist to walk you through the steps you need to complete once you have agreed on the sale of your business.
It takes time and effort to sell a manufacturing business. By following the above steps, you can be confident you are getting the best price possible so you can start your next venture with a solid financial foundation.