Guiding Middle-Market Manufacturers for a Successful Exit

By John McCurdy, David Dinolfo, on February 7th, 2024

Manufacturers are constantly faced with new challenges whether it be global competition, supply chain disruptions, skilled labor shortages, or something else. All of these factors should impact, or perhaps even guide, how manufacturing business owners develop their strategic plan. One important, yet often overlooked, area that manufacturers should not lose sight of when planning is developing their exit strategy.

No matter the size or industry, all businesses must consider an exit strategy. The decision to sell a business is often driven by a combination of personal, financial, and market factors. Some of the most common factors are retirement, new opportunities, health or personal reasons, and market conditions.

Regardless of why you choose to exit, the time will eventually come. So, when is the right time to start thinking about an exit? The truth is an eventual exit should always be in the back of a business owner’s mind.

This article will explore various factors and time horizons for manufacturing business owners in the middle-market to consider when planning for an eventual exit. We break the time horizons into three general categories: Long-term (3+ years), intermediate (1-3 years), and short-term (less than 1 year).

Long-term: 3+ years

Just like most decisions in life, the results of selling your manufacturing business are maximized with proper planning. It is important to start planning your business for an eventual exit well in advance. Here are some key long-term factors to consider:

  • M&A Assessment: How would a potential buyer value your business? What would your business be worth in the eyes of active market participants? A business owner should consider obtaining an M&A assessment from a professional advisor such as an investment banker, that highlights the business’s key valuation enhancers and detractors, identifies areas where you can improve to increase the business’s value before selling, and help set realistic expectations for valuation. Should you want to take a deeper dive into drivers of Company valuation we would encourage you to read our article: Top 5 Drivers of Company Valuation.
  • Growth Strategy: Develop and execute a growth strategy to demonstrate the future potential of your business. This may include expanding product or service offerings, entering new markets, or diversifying customer and/or revenue streams to promote increased earnings power.
  • Financial Performance: Make efforts to improve sustainable profitability, reduce debt, and improve cash flows, as these factors will be closely examined by potential buyers down the road.
  • Management Team: Assemble a strong management team that can effectively run the business without the owner’s involvement. This will make your business more attractive to potential buyers, as they may be less concerned about the transition.
  • Business Processes: Streamline and document your business processes to make it easier for a new owner to take over and run the business efficiently.

Intermediate: 1 – 3 years

After the long-term strategic factors in the previous time horizon are considered, if you envision a sale of a middle-market business in the “not-too-distant” future, there are certain “housekeeping” initiatives that should be implemented to ensure your business is ready for sale in 1 to 3 years:

  • Clean Financial Records: Ensure your financial records are accurate, up to date, well organized, and easily accessible. The business’s financial statements should be GAAP-compliant (in accordance with Generally Accepted Accounting Principles in the United States) to minimize future complications when potential buyers complete their due diligence.
  • Legal and Tax Matters: Consult with legal and tax professionals to ensure your business follows all applicable laws and regulations, and to explore potential tax implications of an exit.
  • Personal Readiness: Assess your personal readiness for selling the business, including your emotional attachment to the business, your financial goals, and your plans for life after the sale.
  • Market Trends: Keep an eye on market trends, industry developments, and the overall economic environment. These factors can impact the timing and success of your exit.

Short-term: Less than 1 year

If you are less than a year out from an exit and have implemented the above considerations, good for you! You do not want to find yourself in a position where you are pressured to sell your business before you or the business are ready. As you near an ultimate exit, you should consider operating the business as you normally would. Do not make any unnecessary changes or risks as you prepare for an upcoming exit. This is the time to assemble the right advisory team and execute your exit plan:

  • Assemble an M&A Advisory Team: Selling a business is a complex process. It’s important to find trusted advisors, such as investment bankers and M&A attorneys, who can guide you through the process.
  • Develop and Execute an Exit Strategy: Develop a comprehensive exit strategy that outlines the steps and timeline for selling your business, including identifying potential buyers, preparing marketing materials, and negotiating/completing the deal. At Bonadio, we follow a disciplined 6-step investment banking process to help our business-owner clients exit their business. That process typically takes 6-9 months from start to finish.

Final Thoughts:

Implementation of these strategies will help you to identify, plan, and execute your manufacturing business’s objectives. No matter where your business falls within these time horizons, we are here to help! The Bonadio Investment Banking Team has over 40 years of experience in the sale of middle-market businesses. Through these experiences we have helped business owners implement strategies to ensure that when the time comes, they are ready.

If you are thinking about selling your business and are curious about learning more about anything described in this article, feel free to contact us.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.

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John McCurdy May2024 370x470 1
John McCurdy
Industry Leader, Manufacturing & Distribution
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