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4 Reasons You Should Sell Your Manufacturing Business
Excellent perspective from a business owner and friend of the firm, Tra Willbanks. While he specifies manufacturing companies, his thoughts apply to most other types of businesses as well.
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4 Reasons You Should Sell Your Manufacturing Business
By: Tra Willbanks,Founder and CEO, Anchor Investments, LLC
Family-owned manufacturing businesses are an owner and founder’s pride, making them especially difficult to part with even if it makes the most sense for the present situation. Emotional attachment and the possibility of family succession and current success can deter owners from making the important, final decision to sell the business. There are several points worth discussing why a long-time manufacturing business owner might finally consider (and benefit from) going through with the sale.
1. As You Age, Your Business Has Outgrown You
Everyone ages differently and there is certainly no strict cutoff for when an owner might consider selling. Still, aging owners might find their manufacturing business’ growth exceeds their own capability of managing effectively. Perhaps they never envisioned they would have more than “X” employees or that they would transfer from a humble job shop to a one-stop, multi-service contract vendor. Naturally, owners in their latter years will tend to be more worried about maintaining what they’ve built rather than seeking new ways for the business to progress. Stagnation with keeping up with company growth is a common issue and a surefire sign a sale could be the best option for the future of the business.
2. Most of Your Net Worth is Tied in the Business
Another concern for aging owners is the amount of net worth tied into the business and the amount of inherent risk that exists in this situation. Many owners have the majority of their personal equity in their manufacturing business, hoping their business doesn’t run into any significant hardship or devastation along the way. There are several ways even a perennially successful business could potentially tank or otherwise suffer a major blow. This could come in the form of natural disasters (tornados, hurricanes, earthquakes, etc.), fires, loss of critical clients and loss of key talent, among many other possibilities. Some owners have a false sense of “true risk” given they feel more in control when they themselves own the business. Ownership, in a way, can make it difficult to take an honest assessment of the risks at hand. Some of the best insurance for locking in and liquidating the value of the business is to sell. In an owner’s latter years when risk is more impactful, this makes selling all the more attractive.
3. Increased Consolidation of the Manufacturing Industry
As the manufacturing industry evolves, more customers are seeking consolidated, multi-service manufacturing vendors over the traditional job shops. Larger manufacturing conglomerates have more resources to invest in capital equipment, talent and overall working capacity. It will become increasingly difficult for small-to-medium-sized manufacturers to compete in the projected future landscape of the industry. Customers appreciate the logistical convenience as well as the quality and quantity of production provided by larger manufacturers. For smaller manufacturers, selling might be the best option.
4. You Anticipate Growth In the Near Future
Part of a successful sale is viewing it from the buyer’s perspective. A company at the peak of its growth is not necessarily as attractive as a company that anticipates even greater growth in the next year. Investors seek assets possessing high-growth potential. While selling the business with potential growth on the horizon can invoke more than a little hesitation, it will more often net you the best deal possible.
Be as Introspective and Realistic as Possible
Ultimately, the decision to sell is in the owner’s hands. Above all, however, owners need to be realistic about their situation and if they’re in a capital-preservation stage. Selling the business doesn’t necessarily mean having to part with a business altogether. Many investors are accommodating if an owner requests to maintain a hand in the business even post-sale. Regardless of personal future plans, selling a manufacturing business is always worth a deeper look. A little introspection can go a long way in determining if it’s the best decision for the present.
