Buying a Manufacturing Business for Sale - What You Need to Know
By Richard Parker: President of The Business Buyer Resource Center and author of How To Buy A Good Business At A Great Price©
Despite the fact that in may areas the manufacturing base has been shifting offshore for the past several years, a lot of prospective business buyers look to get into manufacturing. The challenge of course is that finding a solid manufacturing business with a bright future gets more difficult everyday.
As a general rule, the only manufacturing businesses that are not vulnerable to having the competition move overseas are ones that either have a proprietary or patented product, or that provide “just in time” inventory to their customers thereby eliminating offshore production as an option because of the long lead times that go with it.
Determining what “drives” the business and making sure that specific component matches with your strengths is the key to success for the new owner of any existing business. Many businesses require general business skills and the intricacies of the business can be learned during a transitional period. However; this is not the case with a manufacturing business.
The single most important attribute that you must have when buying a manufacturing business is prior experience. This is not the type of business that you can easily or quickly learn after you take over. The processes of manufacturing is critical and it takes specific “know-how” that is not easily transferred so make certain you do not get caught buying a business you are not suited to run.
14 Key Issues When Buying a Manufacturing Business
- What assurances are in place that the company can continue to manufacture domestically?
- Does the company compete on price, quality, or service or have a process/product that is exclusive to them?
- Are there any customer concentration issues (this is a common problem)?
- Do you have access to additional funds for future capital expenditures? On this note be sure to adjust the Owner’s Benefit downwards to accommodate future capital expenditures.
- Is there pending technology that could render the product or process obsolete?
- Can the client base be expanded? How?
- Can you add new products to your offering?
- What is the condition of the equipment? Does it use the latest technology or is it antiquated?
- How long can it be utilized and maintain current production levels?
- What does the owner do each day?
- Are the systems up to date to manage the manufacturing process?
- You will want to learn about the typical “Work in Progress” levels since this almost always becomes an issue when closing the deal.
- What sources does the company use for raw materials? Will they continue to sell to you and on what trade terms?
- Many industrialists have made fortunes in manufacturing. Despite the fact that we are shifting to a serviced based economy, there will always be certain industries where products require domestic manufacturing. Naturally, you will want to be certain this is the case for any manufacturing business you consider purchasing.
There is also a high degree of gratification in creating and producing a product and many owners of these types of businesses will identify this as a key aspect to what they like about the manufacturing sector. Although opportunities remain in the manufacturing industry, it is critical that you conduct your research and properly educate yourself before buying a manufacturing business.
This article represents a fraction of what you’ll learn on this topic in How To Buy A Good Business At A Great Price© - the most widely used reference resource and strategy guide for anyone thinking about buying a business. Read a detailed listing of what you'll learn.