Running a manufacturing business can be a lucrative venture, especially if there’s a constant and steady demand for a company’s product. However, no matter how successful a business is, there may come a time when the owner wants to sell for various reasons. Maybe they want to retire or move on to other ventures. Or perhaps it’s because the business is doing so well they simply want to sell it for a profit.
Whatever the reason, it’s important to make good decisions during the selling process so the transaction goes smoothly — both for the buyer and the seller.
Review these key considerations when navigating industry regulations when selling your manufacturing business.
Know the Value of Your Business
Before talking to potential buyers, it’s important to know the market value of your business so you can get a fair estimate of what you intend to sell it for. It’s recommended to get experts (like those at www.ibexbeyond.com) to do a proper valuation.
An accurate appraisal of your trade can help you negotiate better terms. It can also inform potential buyers about your business’s financial health. Moreover, business valuations can help identify risks associated with the potential sale, which can be crucial for tax planning and reporting purposes.
How To Calculate a Business’s Market Value
To calculate a market value for a business, here is the general formula:
- (Total Number of Stocks) x Price of Stock = Business Market Value
Before conducting a valuation, compile your income statement and the balance sheet for the past three to five years. Then, prepare tax statements, bank statements, and credit history (among other papers).
Other documents to gather might include:
- Business license
- Leases
- Employment agreements
- Inventory lists
- Contacts for suppliers
These aren’t the only documents you might need; check with an expert so that your files are all in order.
How to Calculate a Business’s Book Value
Based on these documents, a valuation expert may utilize different methods to compute the market value of a business. One of the simplest ways to do so is by calculating the book value by subtracting your manufacturing business’s liabilities from its total assets.
A general formula can look like:
- (Total Assets) – (Total Liabilities) = Book Value
How to Calculate a Business’s Liquidation Value
The discounted cash flow method is based on estimations of future cash flows. Another way to calculate business value is by finding out its liquidation value.
Liquidation value is the amount of cash your manufacturing business is projected to receive if its debts are paid off and its assets are liquidated today. To calculate liquidation value, subtract liabilities and preferred stock from the auction value.
A general formula may look like:
- (Auction Value) – (Liabilities and Preferred Stock) = Liquidation Value
Market Your Manufacturing Business
You may be a wizard at marketing your manufacturing business’s products, but if you’re selling the business itself, a different strategy might be in order to attract potential buyers. To reach your target market, consider partnering with a business broker from your area.
A business broker has the relevant experience to help the transaction push through, and they can create a unique outreach campaign for your business using tried-and-tested methods like email, direct mail, and telemarketing.
Business brokers can also create high-quality materials that highlight your manufacturing business’s advantages and special features. Some of these materials may include videos, photos, and brochures. Don’t forget elements that help strengthen your online presence, such as a website and some social media pages.
Before inquiries come pouring in, double-check that all your financial records are updated, and see that your business location is in good shape. Make sure that your warehouse, factory, and the outside of your premises are clean and that all your equipment is in good working order. This can help to form a positive first impression of your business should a potential buyer ask for a viewing.
Protect Your Business During Negotiations
Once potential buyers start to get in touch with you, hopefully, that means you’re in the final stretch of the selling process. At this point, it could be time to take some steps to protect your business before negotiations begin.
Remember, some of these individuals may just be fishing for information, and they don’t have any intention to buy your company at all. Since you’re giving interested parties access to your company financials, intellectual properties, and other trade secrets, you don’t want them to use this information to benefit your rivals or leverage this info against you.
Asking potential buyers to sign a non-disclosure agreement (NDA) before negotiations could help prevent the leak of sensitive information. For the best bet, reach out to your legal team and similar experts to draft one for you.
Common features include non-solicit and non-compete clauses, but they can vary depending on the company in question. These clauses help prevent potential buyers from doing business with your competitors or competing with you if the sale does not go through.
Final Thoughts: Industry Regulations and Selling Manufacturing Businesses
Selling your manufacturing business can take some time and effort, but it’s worth it once you’re able to find the right buyer. Make sure to consult professionals to help value, promote, and protect your business throughout the selling process for a smooth and hassle-free transaction.
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