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We specialise in advising manufacturers on a range of business advisory services

How to sell a manufacturing business

Selling a manufacturing business can be a complex process given the issues intrinsic to the industry. With the correct advisors, however, you can reduce your chances of facing deal-changing problems, and achieve your principle goals.

So what issues might derail your plans for sale, or introduce doubt into the mind of a potential purchaser?

Market valuation

Manufacturing companies can be complex enterprises to value, so it is crucial to appoint a valuer with a financial background in the industry, who will incorporate the worth of your fixed assets, inventory, and goodwill into their appraisal, rather than providing a valuation based on other businesses in your sector. 

Negotiations and due diligence

Your buyer will carry out due diligence to ensure they are making a sound investment. Due to the detailed nature of these investigations it is advisable to draw up a comprehensive non-disclosure agreement to be signed by interested parties, in order to protect your business. 

In particular, the prospective purchaser and their advisers will scrutinise your accounts, but you may want to undertake your own due diligence before putting the business up for sale. This will allow you to spot any likely concerns that the buyer could refer to, and act to redress problems before they threaten to reduce the company’s value.

With this in mind, which areas of a manufacturing business might benefit from closer inspection?

Maintenance of hard assets

Ongoing maintenance of equipment is a significant cost in manufacturing, but failing to adopt a ‘preventative’ strategy can cause unnecessary downtime in the long-run. This will be reflected in income levels and overall profitability when you are trying to sell your business.

Managing innovation

Making sure that new and innovative products hit the market on an ongoing basis, and at the right time in relation to market demand, is essential for manufacturers to ensure steady revenues. There may be a temptation to cut corners in order to be first to market with a new product, but the ensuing compromise on quality can ultimately result in a lower selling price.

Increased regulation and compliance

Manufacturers must comply with ever-increasing regulation in areas such as waste management and sustainability. These are essential concerns for the wider environment, as well as being vital components for a safe and ethical operation.

But the associated ‘red tape’ can be a significant burden and strain on resources. Some organisations have developed departments dedicated purely to dealing with regulatory compliance, to stay one step ahead of ongoing requirements.

If this is the case with your business, you will instil confidence in your buyer that the operation is prepared for unexpected regulatory issues in the years to come.

Letter of Intent and Final Sales Agreement

Once the due diligence process is complete, and assuming that the buyer wishes to continue in the process, a Heads of Term agreement can be drawn up. Also called a Letter of Intent, this document lays out more detailed terms and conditions of the sale/purchase, including the method by which you will be paid.

It will also detail any requirement for you to continue in the business for an agreed time post-sale. When negotiations are complete, and terms agreed, the final sales and purchase agreement can be signed.

If you need more detailed information about the sale of your manufacturing business, our experts at Selling My Business can help. We are industry specialists and will provide the professional advice needed at this crucial point. Call one of the team for an initial same-day consultation free-of-charge.

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