Every entrepreneur's journey is unique, but when it comes to selling a business, there are key strategies that smooth the process and maximise the value received. Whether you’ve been running a manufacturing business for several decades or only a few years, understanding the key takeaways from successful business sales can be invaluable for your own exit strategy. With the manufacturing sector continuing to grow, and with a number of businesses showing annual turnovers of £1 million to £20 million, there’s never been a better time to learn from others who have sold successfully. Let’s dive into some of the lessons gleaned from those who’ve navigated the process themselves.
1. Timing is Everything
One of the first lessons from successful business owners is understanding when to sell. Market conditions, industry trends, and even your own readiness play significant roles in the process.
- Market Trends: Are you riding a wave in the manufacturing sector? According to the Office for National Statistics, the UK manufacturing sector grew by 1.8% in 2022 after a slight decline in 2021. Selling during a growth phase can increase your valuation.
- Personal Readiness: Are you prepared to move on? Many business owners have noted that emotional readiness is as crucial as financial readiness. A solid succession plan, whether for family or third-party buyers, plays a role in ensuring a smooth transition.
It's worth noting that waiting for the absolutely perfect moment can be a mistake. Instead, focus on timing the market realistically while aligning it with your personal and financial goals.
2. Know Your Business Value
One of the easiest ways to lose potential buyers or lower your business value is by not having a clear understanding of what your company is truly worth. Business valuation is complex, and successful business sellers ensure they’ve taken the time to fully understand their financials.
In the manufacturing sector, the valuation can be driven by various factors:
- Revenue & Profit: Buyers will hone in on your profitability. For businesses with turnovers between £1 million and £20 million, a typical valuation might range between 1 and 6 times your EBITDA, depending on profitability and market conditions.
- Assets: Businesses in manufacturing often have substantial capital assets (machinery, property, etc.). Ensuring these are appropriately valued can make a significant difference.
- Customer Base: Long-term contracts or long-standing customer relationships can further boost your valuation. In fact, businesses with contracts in place are often perceived as lower-risk acquisitions.
Consider having a valuation conducted by a professional, but always stay informed throughout the process to keep a transparency-filled dialogue when dealing with potential buyers.
3. Streamline Operations Before Sale
Business owners who managed to sell their companies at higher valuations report that one thing stands out: streamlined and efficient operations. In manufacturing, this often means ensuring your supply chain, production processes, and employee workflows are well-documented and functioning efficiently.
Here’s how you can do it:
- Standardise Procedures: Document all business procedures and systems. When buyers see a business that can run without you, it adds immense value.
- Reduce Operational Risks: Minimise operational dependencies on only a handful of key stakeholders or clients. Diversifying your customer base will show stability.
- Technology Investment: Ensure that IT and operational tech in your company are up to date. Modern tech solutions like ERP systems often boost a business’s sale appeal by promoting operational efficiency.
4. Prepare Thorough Documentation
Another key takeaway from successful business sales is the importance of documentation. Before you begin marketing your business to buyers, it’s essential to have financial, operational, and legal documentation readily available. Buyers will be doing their due diligence, so make sure you’ve already done yours.
Key documents to prepare:
- Financial Statements: Have clean, audited financials for the last three to five years. Buyers will be inspecting your balance sheets, cash flows, and profit and loss statements closely.
- Legal Documentation: Ensure all contracts (supplier, client, and employee agreements) are current and enforceable.
- Operational Information: Present any documented workflows or standard operating procedures (SOPs) to give buyers insight into your business’s day-to-day workings.
Being prepared isn’t just about providing information—it’s also about creating confidence in the buyer. A well-documented business signals that you take management seriously and are transparent.
5. Build Buyer Trust
Even after preparing thorough documentation, experienced sellers suggest another critical element: trust-building. Buyers may initially have doubts or concerns, and how you engage with them during negotiations can either make or break deals.
- Be Transparent: If there are any problem areas in your business, like a recent dip in profits, address them head-on. Buyers appreciate honesty and realistic assessments whenever challenges arise.
- Open Communication: Ensure open lines of communication throughout the selling process. Successful sellers tend to build rapport with potential buyers, which often results in smoother negotiations.
Selling a business, particularly in the manufacturing sector, requires a high degree of trust. Establishing reliability and openness early on can give buyers the confidence they need to move forward.
6. Maintain Performance Right Until the Final Day
Another common piece of advice from those who’ve sold before is to never take your foot off the gas. Too often, business owners focus solely on the sale process and neglect the operations of the business. Unfortunately, this can lead to a sudden drop in performance, which may scare away potential buyers.
Why it matters:
- A dip in sales or profit margin in the months leading up to the sale can raise questions from the buyer.
- Maintaining solid operational performance ensures that buyers are not deterred by the perception that the business will be too reliant on the owner post-sale.
Continue managing your business as if you weren’t selling it—you never know when things could change throughout the sale negotiation process.
Final Thought: Learn from Those Who’ve Sold Successfully
Selling your business is a big decision, but by studying what successful sellers have done, you’re already setting yourself up for success. When it comes to selling manufacturing businesses in the £1 million to £20 million turnover range, the key takeaways include having a thorough understanding of your business’s value, maintaining strong operations, building trust, and knowing how to time the sale.
If you’re thinking about selling your manufacturing business and want advice on next steps, consider exploring deeper insights or connecting with experts who can guide you through the process.