Manufacturing Business Valuation
With a wide range of multiples, lets hone in on your industry sub-sector
There is no one size fits all multiple for Manufacturing Businesses
Key Considerations When Valuing a Manufacturing Company:
- Are you in a stable, growth, or declining industry?
- Do you have a niche product? Intellectual Property? Trade secrets?
- Do you offer any services in addition to the product?
- Is there a management team in place outside of the owner?
- Are there any family members working in the business?
- Is there any long-term debt in place? Are those loans transferable?
- Does the business (or owner) lease or rent the facility?
- Do you manufacture everything in-house, or act as a distributor for any products purchased by another vendor outside of the US?
- How much do you invest in research and development (R&D), capital expenditures, launching new products, and/or growing sales into new categories or geographic regions?
- What is the condition of your capital equipment? Is there large value in your company assets? How much inventory do you carry?
- How is your business impacted by interest rates and exchange rates?
With either valuation offering,
- The Fair Market Value of your business (what your business will likely sell for out on the Open Market)
- The ‘Net-to-You’–what cash you will receive at the end of the transaction (more important than the Fair Market Value!)
- What expenses can be considered ‘add-backs’ (items that ultimately increase your valuation)
- What like-kind companies have sold for in the past
- Why methods for valuation are commonly used in your industry, and how they apply to you
- What value drivers help and hurt your business
- Ways to grow the value of your business
Benefits of Exit Equity’s Manufacturing
Business Valuation Services
- Strategy and tactics for estate planning, transitioning ownership to a family member/employee, or selling to a 3rd party
- Advice on how to improve your valuation multiples, discounted cash flow, and EBITDA (earnings before interest, taxes, depreciation, and amortization)
- Analysis on the most likely buyer type and approximate total available market (quantity) of potential buyers
- Guidance on potential process to sell both a manufacturing business, property, or set up long term lease to new owner
- The ultimate goal of the valuation is to remove doubt on what your company is worth and take control of the exit outcome!
Why Choose Exit Equity for a Valuation?
Hear it from our past clients.
Our family run manufacturing business is ready for its next chapter and we were unclear on which steps to take and how to take them. [The team at Exit Equity] came in and quickly understood the complexities of the business, respected the family dynamics and was able to guide all parties through both a valuation and a successful transition.. The best decision we made for our family and our company was to work with Exit Equity.
– Julia Gilroy Family Owned Business
While no one can predict the future with absolute certainty, the rich detail and supporting context found in the Broker’s Opinion of Value provided by Exit Equity allowed us to confidently chart our course for the next couple of years. For the depth of research, the relevancy of the comparables, and the relative speed of delivery, we also feel that we received excellent value for the price. The fact that the valuation was such a successful process for us, we’d certainly consider Exit Equity again when we reach the next stage of this adventure.
-Digital Marketing Agency Founder
I called numerous brokers and was very impressed by the professionalism and thoroughness that Exit Equity provided us. They really took the time to understand our needs and the final valuation came at a fair representation of the work we put into it through the years. I would HIGHLY recommend their services to any business owners wanting to understand their numbers and what it would actually look like to sell a business.
– F.B. , founder and owner of a Business Services business
Take the Next Steps
Free and confidential consultation to determine what type of valuation is needed, price and process
1-2 informational meetings to understand your business and value drivers
Provide needed information to analyst—both quantitative and qualitative
Meet with your EEQ Expert for a 60-90 minute valuation presentation- a time to ask questions, identify actions and next steps based off your goals
Frequently Asked Questions Manufacturing
Q. I own both my business and the property where I operate my business. Should I sell the property and business together in a package?
Depending on the type of buyer you are looking to attract, and your personal wealth management plan, you may consider selling the property and business as packaged deal, or just the business and then set up a long term commercial lease with the new business owner/tenant. In the case of a packaged deal, a buyer will be able to obtain a more advantageous loan, with better deal terms than a standard seven year SBA. The buyer may be able to obtain a 20 or 30 year loan to purchase the business and the property. If your property is in a great location, in great shape, it may be better cash flow for you personally to sell the business on its own and collect a monthly rent check from the tenant. Exit Equity is registered as a real estate brokerage firm and can help clients walk through the financial advantages of selling or leasing the commercial property. The valuation for the property and business must be two distinct analyses.
Q. I am considering a company sale within the next year. Should I consider a large capital expenditure to repair my tooling and critical equipment? How does this impact my valuation?
A.) In most cases, a business must be sold cash free, debt-free. A buyer will not want to purchase a business and take on large debts with challenging pay back terms. A seller needs to balance the trade off of making a large capital expenditure to improve the quality of the business with the impact this makes on the balance sheet. Capital expenditures may qualify as an add-back and have a negligible impact on adjusted EBITDA, but only if it is truly a one time expense and not on-going cost of doing business.
Q. I took a large, 20 year term SBA loan during COVID and spent a healthy portion of the loan in 2022. This loan, with a great interest rate and terms should increase the value of my business to a prospective buyer, right?
A.) WRONG! An SBA loan is not transferable or assignable. The loan has a personal guarantee on it and it must be paid off prior to selling a business. If you thought that your business is worth $1.5M, but you have a $800,000 loan, that means you need to pay the $800k and your asset sale / purchase agreement will net you $700,000 (before any transaction fees).
Q. I see that I can receive a free valuation through other parties and apps. Why do you charge a fee?
A.) Every business is different, each has its own unique set of challenges and history. We produce bespoke valuations for each client based on market conditions, financial statements, current threats, and opportunities to grow. The typical valuation takes between 20 and 30 hours to complete.
We charge a fee to fairly compensate our staff for the work and knowledge it takes to complete the valuation. Like all things in life, you get what you pay for in terms of quality and customer service when the price is set to zero.
Q. My manufacturing business is a family run business. How does this impact my valuation?
Its critical that the owners a business are working on the business, not working in the business. If a business owner cannot take a vacation without the business imploding, this is a sign to a buyer that the business is missing key management structure. If family member’s are working in the business, but the costs associated with their efforts do not show up on the income statement, a calculation of value will make an expense adjustment and the valuation will go down. If family members work in the business, but are paid well above market rate, the calculation of value assessment will normalize these expenses to market rate, which will improve the value of the business.
Q. With the recent economic and supply chain challenges, I greatly increased my inventory so that we could meet customer demand in a timely fashion. How does this impact my valuation?
A.) Purchasing excess inventory can lead to lower inventory turns, higher holding costs, and lowering overall EBITDA and your valuation. A buyer will not want to purchase excess, out of date, or obsolete inventory. If you have too much inventory, a buyer will use this to negotiate the purchase price downward
Q. How much does a valuation cost?
A.) Exit Equity offers a firm fixed price for a valuation. A typical valuation takes between 15 and 30 hours, at times up to 45 hours. The total amount of hours needed to complete the valuation depends on the complexity of the business (messy books, multiple subsidiaries, multiple currencies, etc), the type of valuation, and the qualification level of the analyst required to complete an accurate and robust valuation. Once a client needs assessment has been completed, our team can quickly prepare a quotation for a valuation.
Q. What valuation methodologies do you use?
A.) We analyze a company’s value based on the cost, market, and income approach. Depending on the business and industry, this could include comparables businesses sold, rule of thumb multiples (EBITDA and seller’s discretionary earnings), real estate, the net present value of discounted free cash flow, and purchase method.
For Technology Business Valuations, we may also consider monthly/annual recurring revenue, churn rate, customer acquisition cost, intellectual property/trade secrets, and customer lifetime value when determining the appropriate multiple.
Q. What is the typical output of a business valuation
A.) Video or in-person meeting to review the potential valuation range based on the methodologies named above, and a 10-20 page report summarizing our analysis. The report will include:
- The Fair Market Value of your business (open market value)
- ‘Net-to-You’–the cash you will receive at the end of the transaction (considering net working capital, long-term debt, and/or transaction fees)
- Expenses that can be considered ‘add-backs’ to improve the net income, EBITDA, and SDE calculations
- Comparable like-kind companies that have sold in the past
- Methods for the valuation range that are commonly used in your industry, and how they apply to you
- Value drivers help and hurt your business
- Strategies and tactics to grow the value of your business
Q. What is the typical input to create a business valuation?
A.) Annual and trailing 36-month income statement and balance sheets, tax returns, accounts receivable aging list, and a self-assessment questionnaire, One to two conference calls with the client to understand their business, industry, and market, add-backs, and intricacies of the input documents.
Other inputs may include real estate information, lease terms, segmentation of customers/revenue/churn, top competitors, list of equipment assets, past and forecasted revenue and capital expenditures (CAPEX), terms of long-term debt, website traffic data and history, distributor agreements, supply agreements, and/or intellectual property.