Buying a Manufacturing Business: What You Need to Know?
Most business people see the buying of a manufacturing business as a lesser risk as compared to building one from the ground up. It is true that buying a pre-existing business has its high points. But this does not in any way guarantee that the business will succeed in your hands. If you have made up your mind to purchase a manufacturing business, you need to tick some vital boxes and ensure that you are making the right decision.
Following could be the points for due diligence:
Get A Valuation
Once you have located a business that fits your business aspirations, it is important that you get a valuation of that business. No bank will touch you with a 10 foot pole and give you a loan without a professional valuation of the company. It is foolhardy to jump in the water and try to take on everything by yourself. Remember you need start-up capital to keep the business running. So do not commit all your cash.
Get professionals in on the valuation job. You cannot afford to rely on your own judgment which might narrow-minded or birthed on sentiments. Business valuation experts always return with the winning numbers to help potential owners decide if they are good to go or if they should abandon a purchase. So do not try to reinvent the wheel.
Keep Diligent Employees
All great businesses are driven by even greater individuals. Do not waltz into the place and fire the people who helped to make the business a success in the first place. It is crucial that you keep hardworking and passionate employees who understand the business, customers and how to handle the competition. If you let them go, your competition might just welcome them with open arms. And this is bad news for you.
Remember that buying a manufacturing company comes with a saddle of hassles. You might be charting new courses or expanding your business terrain. But it is vital that you realize that certain lapses would come with the territory. It is not every business owner that will put you in the loop about talk about unpaid bills or pending debt payments.
It is up to you to play the sleuth and check up on the contractors and tax agencies to find out if the books are clean and healthy. Ensure that you also get 2nd opinions from the employees about the status of the company accounts.
You do not just whip out your money and pay for a manufacturing business just because it is there for the taking. You need to know when you will start to rake a profit from the business after getting your principal investment back.
If you are pushing the purchase through with a loan, figure out when your last payment would be paid. Can you wait 5 or 10 years before you start to rake in the profits? If it is going to take you over 2 years to break even, does your financial position allow you to sit comfortably waiting for that to happen?
About The Author
Alam Qureshi is a Certified Business Intermediary (CBI), Certified M&A Professional and Broker of Record at ProClient Brokers Inc., Brokerage. He helps business owners learn how to sell a business so they can get the maximum value for their company. call us 416 364 5550 or CONTACT US to get in touch.
Date modified: 7-28-2019