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How to Sell Your Manufacturing Business

Posted on Tue, Sep 01, 2020

 

How to Sell Your Manufacturing Business

Small to mid-sized U.S. manufacturing businesses have become attractive targets for acquisition as more companies want to label their goods, “made in America.” Boomers who own manufacturing companies are ready to exit and move on to the next phase of their lives. Preparation is essential to a successful sale; think about how to sell your manufacturing business before you start the actual process.

Keep it Quiet

Confidentiality is critical to the successful sale of your business. As you begin your preparations, make sure that no one finds out that your efforts are in preparation for a sale. The things you will be doing – cleaning up your facility and records, making sure you are in compliance with all laws and regulations, writing off old inventory, building a strong second tier of management – are all good business practices that should require no further explanation to employees other than that you are always striving to improve your business.

Clean Up

Cleaning up your facility and putting processes in place to keep it clean should be high on your to-do list as you prepare to sell. It’s surprising how important “curb appeal” can be when a serious buyer comes for a site visit (off-hours, of course!). But it’s not just the facility that should be ship-shape, but your record-keeping as well. Owners accustomed to rolling up their sleeves and walking around the plant floor sometimes don’t focus enough on keeping financial and other records in perfect order. Buyers (and lenders) however, will want to see employee and operational manuals, financial records, regulatory compliance records, licenses, etc. all up-to-date and accurate.

Compliance

Make sure that your business is in compliance with all environmental, employee and workplace regulations. Failure to attend to these items can come back to haunt you even after a successful sale. If, after closing, an issue comes up regarding something that was amiss while you owned the company, it may still be your responsibility. So, it pays to resolve any potential problems before you sell.

Inventory

A warehouse full of unsold parts and old, unused equipment will turn off prospective buyers. No one wants to buy a business only to inherit a “clean-up” project. Write off and get rid of old inventory, sell or dispose of old, unused equipment and make sure that your facility is organized in a clean and efficient manner.

Exit Plan

Devising an exit plan for a manufacturing business, or any business, requires the owner to consider what role he will have in the business after the sale. Some owners just want to show the buyer where the light switch and keys are and take off for parts unknown! But, normally, a more formalized succession plan is required. Depending on the seller’s desires, the industry knowledge of the buyer, and the strength of the seller’s second-tier management team, post-closing seller involvement can range from as little as two months to as long as a year or more.

Work with Professionals

Your business has many moving parts, and so does preparing for, structuring and concluding its sale. Without professional help, you would have to both run your business and prepare for and conduct the sales process on your own. Keeping your business profitable and attractive is already a full-time job. That’s why you should work with experienced manufacturing business brokers who know how to sell your manufacturing business. They can package and present your business as an attractive opportunity, locate and vet prospective buyers, obtain the strongest price and ensure confidentiality throughout the process.

Is Selling Your Business to Your Employees a Good Idea?

Posted on Fri, Aug 07, 2020

Is Selling Your Business to Your Employees a Good Idea?

Many small to midsize businesses have long-term employees who know the business through and through. They have grown in their roles as the business has grown. They know the business’s strengths and weaknesses, the employees and the clients. When a business owner decides it’s time to exit, selling the business to key employees may seem like the obvious choice. But, is selling your business to your employees really a good idea?

Confidentiality Is Critical

Business owners contemplating an exit should keep their intentions under wraps until the sale is completed. Telling employees too soon can foul the deal from the start. Employees who know their boss is selling may lose confidence and begin to look for other jobs. Rumors about the business’s viability may begin to circulate, and the business could lose customers and creditors. So, unless you are certain you can have discussions with key employees in total confidence, its best to keep the fact that you are selling confidential and find an outside buyer. Professional business brokerage firms can advise you on the wisdom of selling to an outside buyer, and they can also help you manage the process successfully if you do decide to sell your business to your employees.

Financing May Be an Issue

If you need to walk away from a business sale with the all, or almost all, of the purchase price in your hands, selling your business to your employees may not be a great option. Employees almost never have enough available capital to pay cash at closing, and often won’t qualify for a business acquisition loans. You may find that the only way you can sell to your employees is if you provide the bulk of the financing yourself. And, if you are counting on the proceeds of your sale to fund your retirement, this may not be a risk that’s worth taking. Better to let your business broker take the risk out of selling by matching your business with a well-capitalized buyer who can cash you out at closing.

Your Vision for Your Business After the Sale

When you have put your heart and soul into building a business, you may find letting go difficult. If you have a strong management team who believes in the business, selling to employees can offer you a way to thank them for their devotion, and be a way maintain your legacy (your employees might even keep your picture on the wall!). You may have to provide the financing yourself, but you can minimize the risk if you are willing to work for the company after the sale for a few years. In this way, you can continue your stewardship of your company and ensure that there are enough profits to comfortably pay off your note.

If, on the other hand, you don’t want to risk not receiving the full purchase price and/or you are not interested in working for your company after the sale, then selling to your employees is not for you. In either case, working with a professional business broker will help you determine your best course of action and help you achieve your goals in the sale. 

Selling Your Business During COVID

Posted on Mon, Jul 27, 2020

Selling Your Business During COVID

The COVID-19 pandemic has made selling a business more complicated, but not impossible. Liquidity and low interest rates combine to create favorable conditions for sellers who can demonstrate that their business continues to be viable. Pay attention to tips on how to sell your business during COVID, and you can conclude a sale at a strong price with favorable terms.

Know Why You Want to Sell

It’s better if the pandemic is not the driving force for your decision to sell. Maybe the pandemic came along just as you were planning to retire anyway. Or perhaps you were already “burned out” and looking to pursue other business opportunities. If your business was not seriously affected by the pandemic, now is a great time to sell. If, however, your business was affected, and you have the will and the energy, you may want to re-invest and rebuild before you put your business on the market. Or, if you were already close to retirement, or you just don’t have the passion or the funds to rebuild, selling your business now, even at a somewhat distressed price, may be the best course.

Stay Afloat

Essential businesses, technology, online education, ecommerce, and delivery businesses are participating successfully in what may be a permanent change in the business landscape. But even if your business has suffered, don’t give up. Your business had value before and still does; your choice is to sell it now at a discount, or to reinvest, rebuild and do the work necessary to mitigate the damage the pandemic has done to a previously thriving business. Getting your business “back on track”, even at a lower run rate, will help prospective buyers gain a picture of what your business looks like in more “normal” times and will support a stronger price.

Be prepared to show the actions you took to adapt to the pandemic environment. Everything from remote customer service to adjusted product lines to reduced overhead from remote work may be relevant. Buyers will also want to know how you managed cashflow during this crisis. Document the steps you took to stay afloat and ahead on your balance sheet.

Mitigate Risk

Just as you would in ordinary times, clean up your finances and address pending risks that could deter buyers. Slow-moving inventory, outsize debt, inordinate personal expenses, outdated operational and human resources practices, litigation, and a backlog of accounts receivable can deter buyers. A small investment in cleaning up these items can make a big difference in the price your business will command.

Work With Professionals

Now more than ever, a professional business broker can help you prepare your business for sale and both find and vet prospective buyers for you. A business broker will help you prepare the best and most accurate picture of your business’s value to present to potential buyers, taking the impact of the pandemic into consideration. Don’t limit your thinking to the local area only; for example, reputable business brokers in the Washington, DC, area will have contacts nationwide that can help identify serious buyers who want to enter the local market.

Selling a business is never easy or quick, but even during the COVID-19 pandemic, it is possible. Knowing how to sell your business during COVID means understanding that many of the ordinary considerations, like accurate valuation and historical performance, are still very relevant even taking the pandemic into account.

Selling Your Business to a Competitor: Pros and Cons

Posted on Mon, Jul 13, 2020

Selling Your Business to a Competitor: Pros and Cons

Selling your business to a competitor may seem like a quick and profitable way to exit, but it is fraught with risk. Before entertaining offers from others in your industry or a related business, think through the pros and cons of selling your business to a competitor

Competitors who show an interest in purchasing your business may include those who serve the same market and customers as your business (direct competitors), those who address a little bit of your market (indirect competitors), or those who serve a different sector of the same market as your business (near competitors). Their motivations may include quick expansion to more locations in your area, entry into a sector of the market they have not previously serviced, or the less admirable or even nefarious motivation to steal your customers and your trade secrets.

Selling to a competitor: Pros

Competitors can be attractive prospective buyers because they know and understand your business. They are likely well-capitalized, with strong banking relationships and ready cash. Competitors have much to gain from buying your business, including adding customers and the opportunity to expand their market share in your area. Selling to a competitor may offer a quick exit - without the need for you to stick around very long after the sale to show the new owner the ropes.

Selling to a Competitor: Cons

Although business owners in the same or related businesses often maintain cordial relationships, perhaps serving together in chambers of commerce or charitable organizations, competitors are still competitors. During the due diligence process, a prospective buyer gains a great deal of information about the business for sale. If the deal falls through for any reason, your competitor could walk away with customer info, trade secrets, and highly sensitive financial information. An unscrupulous competitor might try to use this information to his advantage. For business owners who have invested a lifetime in building their business, seeing it negatively impacted by such underhanded methods could emotionally devastating.

Employing an experienced business broker can help protect business owners from the “cons” of selling to a competitor by locking down strict Non-Disclosure Agreements and weeding out prospective buyers who aren’t serious but just want to spy. If you are looking for a business broker in Pennsylvania or the Mid-Atlantic States, contact Prime Investments for professional advice and assistance in sorting out the pros and cons of selling your business to a competitor.

How to Determine the Fair Market Value of Your Company

Posted on Mon, Jul 06, 2020

How to Determine the Fair Market Value of Your Company

Small and mid-sized business owners looking to sell need to assess the fair market value of their business (the value of their business in the real world) before they put their business on the market. Fair market value isn’t related to how much money you need for your retirement or how many years you devoted to building your business. It’s an objective valuation of your business in a competitive market. It answers the question – given that there are similar businesses available to purchase, how much would a buyer pay for my business? The answer is based on several factors.

Cash Flow

To understand how much a business is worth, it is helpful to first ask this question: why would anyone buy my business? The most common answer is that the buyer wants to make money – he wants to buy your business and maintain or grow your cash flow. The technical way that the market calculates cash flow is EBIDTA – Earnings Before Interest, Depreciation, Taxes, and Amortization. But buyers may also consider benefits they would receive as the owner of your business, such as owner’s salary, pension or retirement fund contributions, one-time expenses that won’t recur, and other discretionary expenses that the business will pay for the benefit of the owner. Adding the owner’s benefits into the calculations yields what is called Adjusted EBIDTA.

Comparables and Additional Factors

After the Adjusted EBIDTA is calculated, you will want to learn how much business with similar Adjusted EBIDTAs actually sell for. But comparable sales (“comps”) for businesses are much more complicated than simple real estate comps. In addition to the Adjusted EBIDTA, business comps factor in the industry you’re in, size, customer base, customer concentration, sales backlog, location, competition, economic trends, specific industry trends, management team, management systems, employee stability, intellectual property, equipment and vehicles and many other factors. All of these components go into determining what kind of company is truly “comparable” to another business and how one business stacks up against another.

Weighing all of these factors and considerations may seem a bit daunting. Gathering all that information, figuring out which of it is relevant to the market value of an individual business, and packaging it to present to prospective buyers is a full-time job! Fortunately, small and mid-sized business owners looking to sell can get help from the services of middle-market business brokers like Prime Investments. An experienced broker like Prime has the expertise and knowledge to prepare a comprehensive business valuation that takes into account all of the local and industry factors, as well as recent sales in your sector.

It’s the broker’s job to find and detail all of the Adjusted EBIDTA components to show the true profitability of your company and to evaluate all of the other factors that may affect its value. The broker then presents this information in a way that portrays your company in its best possible light. In this way, the broker can defend a strong valuation and achieve a sales price that meets, or even exceeds, your expectations.

If you are serious about selling your business, getting professional help to assess the fair market value for your company is a wise choice. 

Why Confidentiality is Critical When Selling a Business

Posted on Tue, Jun 02, 2020

Why Confidentiality is Critical When Selling a Business

Selling a business isn’t like selling a house. If you want to sell your house, you hire a real estate agent who puts a sign in your front yard for the world to see, puts an ad on the MLS, and generally tries to get the word out to as many potential buyers as possible.

Selling a business is completely different. When a business owner decides that now is the time to sell, they must understand why confidentiality is critical in selling a business.

Reputation

Concluding the successful sale of a business depends on maintaining the business’ profitability and attractiveness to prospective buyers while the selling process is going on. If news gets out that a business is for sale, the first assumption many people make is that the business is failing. Stopping those rumors before they start by maintaining confidentiality is critical to attracting qualified buyers.

Employees

Nothing gets employees busy updating their resumes faster than finding out that their company is for sale. They worry that the new owners won’t keep them. Uncertainty is the enemy of productivity and continuity, and business owners who are looking to sell need both. Key employees have experience and knowledge that is integral to the business’s value. Buyers want to know that they can pick right up where the previous owner left off and keep a successful business moving forward. They don’t want to spend their first year rebuilding a workforce and trying jump-starting what had been a thriving enterprise before key employees got scared off by learning prematurely about a sale.

Competitors

Learning that your business is for sale will likely cause your competitors to intensify their efforts to woo your customers (and employees) away. Most competitors won’t be able to resist the temptation to spread the word. They’ll seize on the opportunity to make your business look unstable and present themselves as the safer alternative.

Vendors and Creditors

Vendors and creditors get nervous when they hear that a business they work with is for sale. They may wonder what will happen to their invoices and their loan payments – they may stop entering into new agreements or think twice about renewing existing ones.

You may wonder how to sell your business at all if you can’t tell anyone it is on the market. That’s why the services of a professional business broker are so valuable. Brokers know how to attract serious buyers while maintaining strict confidentiality when selling your business. Whether you need a construction broker for your construction trades business or a broker that specializes in manufacturing, IT, or healthcare businesses, Prime Investments can help—and help ensure confidentiality in selling your business.

4 Mistakes to Avoid When Selling Your Business

Posted on Wed, May 20, 2020

4 Mistakes to Avoid When Selling Your Business

It took years for you to build your business, and it will take time to sell it. Rushing your exit could cost you money and leave you with regrets. Plan ahead and avoid these mistakes when selling your business.

Poor Preparation

Most buyers want to buy businesses that are “clean” and in good condition, not “fixer-uppers”. To maximize the value of your business, you need to prepare. You should file all tax returns that are due, make sure your financial statements are accurate and up to date, make sure customer contracts, vendor contracts, leases, and other business documents are current and accessible. All employee paperwork, contracts, non-competes, etc. should be current. If you have any employee issues or disputes, you should try to resolve them. Likewise, try to resolve any pending litigation. And don’t forget to clean up your physical facility. Serious buyers will want to see it. Cleaning out items you don’t need and a fresh coat of paint can often make a business more attractive.

Breaching Confidentiality

Your intention to sell your business must remain strictly confidential. If employees, clients or customers find out, or even suspect, that you intend to sell your business, they may start looking elsewhere for jobs and suppliers. Confidentiality is a major reason to involve a qualified business broker. Brokers keep all communications about the prospective sale away from the business. Whether the business is located in Philadelphia, Baltimore, DC, or elsewhere, an experienced business broker will serve as the hub for all of the activity relating to your sale, and allow you to operate your business as you normally do, even while the wheels of the sale are turning. A broker’s reputation rides on maintaining confidentiality as much as on the number of successful deals they conclude.

Valuing Your Business Incorrectly

Business owners will often look at their great employee team, the adversity they overcame together, the years of hard work, and feel that these factors should increase the value of their business. But buyers are not sentimental. Just like selling a house, or selling the product or service your company provides, your business will sell in a competitive market. Buyers will compare your business to other businesses on the market. They will want to know your EBIDTA—your earnings before interest, depreciation, taxes, and amortization. They will compare your business to other businesses on the market. They also want to know the risks and the trends in your industry. Your business broker will make sure that all legitimate items are counted in your EBIDTA so that your business is presented in its best light, and then “package” your business to highlight all of its positive attributes in order to obtain the highest possible selling price.

Phoning It In

When you have made the decision to sell your business, you may be tempted to ease off the day-to-day strain of keeping things going and continuing to grow. This is a big mistake. Not only will your employees and customers notice that you seem less involved, but “phoning it in” risks damaging your business’s value. No one wants to buy a declining business for anything more than fire sale prices. To get the price your business deserves, you must stay actively involved in sustaining quality, profitability, and growth.

These are just a few common mistakes to avoid when selling your business. Contact Prime Investments to serve as your business broker to help guide you to a successful sale.

Types of Potential Buyers for Your Business

Posted on Mon, Apr 20, 2020

Types of Potential Buyers for Your Business

If you are thinking about selling your business, it’s important to understand that different types of buyers for your business will have different motivations, concerns, and processes. Your professional business broker advisor will help you navigate among the different types of buyers and help you to find the buyer who will give you the best deal and carry your business forward successfully.

Entrepreneurial High Net-Worth Individuals

Individual buyers either have previously run businesses themselves or are first-time buyers who possess the general business skills needed to manage a business like yours. These buyers put up their own money and/or take on the risk of borrowing money to buy a business. Individual buyers have a lot at stake and tend to be cautious throughout the process. While it sometimes takes a bit more patience and hand-holding to get a deal done with an individual buyer, once he is comfortable that your company represents a safe investment, the entrepreneurial individual is often the perfect buyer.

Private Equity

While it’s unlikely that small to mid-sized business owners will see large financial players or huge hedge funds show an interest in their company, smaller private equity groups often purchase businesses in the $1–50 million range. These groups are composed of investors who pool their money to acquire portfolios of businesses. They might involve several members of a wealthy family, where the family wealth itself is the “business,” or they may simply be a group of experienced investors, successful enough not to need outside financing, who see the potential in a mature business that can benefit from professional management when the founder is ready to move on. Private equity funds look at numerous businesses. If they like yours, they can make a quick decision and usually are willing to pay a strong price.

Other Companies in the Same or Related Industries

Companies in your industry or a related field often find that acquiring businesses in the same or related field is the quickest route to growth. These companies might have an interest in purchasing a business in a particular location to expand their geographic reach. Location might make a difference, so if, for example, your business is in Virginia, look for a business broker with experience selling Virginia-based businesses. While selling to a direct local competitor can risk breaching confidentiality, a company in your industry but not in your area (or in your area but who is not a direct competitor) can be a good buyer who will understand the value of your business and is willing to pay a good price.

Different types of potential buyers for your business will approach the purchase differently—as an opportunity to expand their market share in your industry, to add to their portfolio, or as a chance to strike out on their own. All these motivations will drive how these buyers value your business and what information about your business they’ll look at most closely.

How to Choose the Right Business Broker

Posted on Wed, Mar 25, 2020
 
How to Choose the Right Business Broker
 
Finding the right business broker requires every bit as much forethought and consideration as deciding to sell your business in the first place.
 
Before you make any inquiries, learn how to choose the right business broker.
 

Confirm Their Commitment to Confidentiality

Even sniffing around to get referrals and checking references can compromise confidentiality. It is critically important to keep your intention to sell your business secret. Do some research on your own and narrow down a list of possible brokers for your business and interview them. When you talk to candidates, your first question should be, “What steps do you take to ensure confidentiality?” The broker should have a set of procedures in place that ensures confidentiality and minimizes the chance that word of a potential sale of your business can get out.

Establish Experience

Ask any business broker candidate how many deals they’ve successfully concluded in the past year. Of those, ask how many were in an industry similar to yours, and how many were of a similar size. If yours is a mid-tier kind of business, look for a middle market business broker who understands the issues involved in selling similar-size businesses in your geographic area. Experience counts when considering how to choose the right business broker.

Avoid Upfront Fees

Some brokers charge lots of up-front fees – fees for providing an appraisal, fees for “packaging” your business (creating the prospectus), monthly retainers – fees that they keep whether they sell your business or not! And then, if they do sell your business, they get another fee! Other firms operate strictly on a success fee basis - they get paid only when the sale of your business actually goes to closing. Beware of any business broker who asks for money upfront. If the broker has confidence in his ability to sell your business, he should be happy to earn his commission when the deal is done and get paid when you do - at the closing table.

Trust Your Instincts

You will spend a lot of time with, and share a lot of information with, the broker you choose to help you sell your business. If you don’t feel comfortable with the broker, it’s not likely you’ll get a deal done. Be honest with yourself about whether you think you can create a good working relationship. If you don’t feel the broker listens to your concerns, or doesn’t respond to your inquiries promptly, look elsewhere.

Stay Local

You should meet with your broker, in person, eyeball to eyeball, before you make the decision whether or not to hire them. Is this a firm that you can trust to successfully guide the sale of your business and achieve the results you want? Choose a broker who is nearby and accessible. Although the buyer may come from out of the area, the broker needs to be local so that he can guide the process, attend meetings, assess personalities, anticipate and solve problems, hold hands, negotiate, cajole, etc. – to do whatever is necessary to get the deal done. A broker’s work simply cannot be “phoned in”.

Prime Investments has the experience, the contacts, and the expertise to help sell businesses in Maryland, Washington, DC, Virginia, Pennsylvania, and Delaware, with a nationwide roster of buyers looking for businesses like yours.

Selling a Business: When and How to Tell Employees

Posted on Wed, Mar 11, 2020
Selling a Business: When and How to Tell Employees

It is critically important to keep your plans to sell your business confidential until the sale has closed. The best time to tell your staff is after the transaction is completed. Here’s  when and how to tell your employees you  are selling your business.

Keep Mum Until the Deal is Done

is to not disclose your intention to sell your business to anyone, except your outside lawyer and accountant. If employees get wind of your plans, they may get nervous and begin looking for a new job. Clients and customers who hear about it could lose confidence in you, and lenders may withhold credit. No good can come of announcing your plans.The best course of action 

A business broker helps to maintain confidentiality by keeping communications with potential buyers away from your business. Work with a business broker you trust to maintain absolute confidentiality. For example, if yours is a manufacturing operation, interview several manufacturing business brokers and choose a broker that gives you confidence that he can maintain confidentiality and is familiar with issues specific to your industry.

In rare circumstances, the buyer may require information that 

only your controller, CFO, or other key employee can provide. If you need an employee’s help to complete the sale, tell them only what they need to know, and only when they absolutely need to know it. In some cases, the buyer may insist on meeting with key employees before closing to be comfortable that these employees will stay with the company after the sale. Only allow these meetings to occur at the very end of the process—a day or two before closing and after all other contingencies have been satisfied. And even then, keep these occurrences to an absolute minimum and impress upon the employees involved the need to keep their knowledge of the impending sale confidential from their coworkers.

After the Closing, Call a Meeting

Now that you’ve sold your business and have closed the deal, you need to tell your employees. Call a staff meeting and explain what has happened and why. You will be speaking to the people who made your company successful and attractive to a buyer. Speak from the heart and tell employees how much you appreciate their hard work. Reassure them that you have chosen the buyer carefully, and the sale means the business will continue to grow and thrive. Explain that you will still be around for a period of time to ease the transition.

In order to minimize employee apprehension about what the change in ownership means for them, you should introduce the new owner to the team as soon as possible. When the new owner speaks to the employees, he should mention how you spoke highly about them all and reassure them that everyone’s job is secure and that he is not planning any immediate changes.

Deciding when and how to tell employees you are selling your business is tough, and actually doing it may be even tougher. A seasoned, professional business broker should be engaged who employs proven methods to ensure confidentiality, and who can advise and guide the seller as to the proper timing and context of informing the employees about the sale.