Buying a Manufacturing Business

By: Richard Parker
Author of How To Buy A Good Business At A Great Price ©

Despite the fact that the manufacturing base has been shifting offshore for the past several years, many prospective business buyers look to get into manufacturing. The challenge of course is that locating a solid manufacturing business with a bright future gets more difficult to find everyday. As a general rule, the only manufacturing businesses that are not vulnerable to having the competition move offshore are ones that either have a proprietary or patented product, or that provide “just in time” inventory to their customers thereby eliminating offshore production and the long lead times that go with it. Determining what “drives” the business and making sure that specific component matches with your strengths is the key to success for a new owner of an existing business. Many businesses require general business skills and the intricacies of the business can be learned during a transitional period. However; this is not the case with a manufacturing business. The single most important attribute that you must have when buying a manufacturing business is prior experience in this sector. This is not the type of business that you can easily or quickly learn after you take over.

What to Consider When Buying a Manufacturing Business

  • What assurances are in place that the company can continue to manufacture domestically?
  • Does the company compete on price, quality, or service or have a process/product exclusive to them?
  • Any customer concentration issues?
  • Do you have access to additional funds for future capital expenditures? On this note be sure to adjust the Owner’s Benefit downwards to accommodate future capital expenditures.
  • Is there any pending technology that could render your product or process obsolete?
  • Can the client base be expanded? How?
  • Can you add new products to your offering?
  • What is the condition of the equipment? Is it the latest technology or antiquated?
  • What does the owner do each day?
  • Are the systems up to date to manage the manufacturing process?
  • You will want to learn about the typical “Work in Progress” levels since this almost always becomes an issue in closing the deal.
  • What sources does the company use for raw materials? Will they continue to sell to you and on what trade terms?

Many industrialists have made fortunes in the manufacturing business. Despite the fact that we are shifting to a serviced based economy, there will always be certain industries and products that will require domestic manufacturing. Naturally, you will want to be certain that is the case for any business you consider. There is also a high degree of gratification in creating and producing a product and many owners of these types of businesses will identify this a a key aspect to what they like about the manufacturing sector. Although opportunities remain in the manufacturing industry, it is critical that you conduct your research and properly educate yourself about buying a manufacturing business