How to Sell Your Manufacturing Business: A Complete Guide for Owners to Maximize Value and Close Faster
How to Sell Your Manufacturing Business
What does the entire process of selling a manufacturing business look like? I’m going to cover each step in the transaction process so you know how to prepare your business for sale and what to expect throughout each phase.
Step 1: Determining the Price of Your Manufacturing Business
In the world of buying and selling businesses and M&A, this is called a valuation. A valuation is essentially a business appraisal and is the first, yet most critical, step in the process because it sets price expectations for both you and potential buyers.
Pricing too high will result in savvy buyers overlooking your business, while pricing too low leaves money on the table—money that could be used for retirement, future investments, or simply kept in your pocket.
There are two approaches to obtaining a valuation for your business:
A Broker's Opinion of Value
A Certified Business Appraisal
For the most part, brokers can accurately determine how to price your business and what it might sell for. Some brokers charge upfront fees for valuations, while others offer them for free. As a business broker, my advice is, “you get what you pay for.” A broker's opinion will usually be relatively accurate, but a certified business appraisal goes several steps further and gives you more authority to stand behind your asking price.
Regardless of the approach you choose, you’ll need the following documents:
The last three years of profit and loss statements
The last three years of Tax returns
The last three years of Balance sheets
Asset lists
Any appraisals for real estate you own
While additional documents may be required, these are typically the key items needed for a valuation.
At this stage, many business owners hire an M&A advisor or business broker to conduct the valuation and help set the asking price for the business.
Step 2: Preparing Marketing Materials
Once you’ve determined the price for your manufacturing business, the next step is to prepare marketing materials.
This is another area where a business broker can add tremendous value. Brokers will typically create a marketing packet called a Confidential Information Memorandum (CIM), which highlights all aspects of your business. This packet includes:
Financial performance
Future projections
Key employees
Industry insights
Products and services
Customer concentration
Buyer opportunities
Organizational structure
Potential risks and weaknesses
And much more
A well-crafted CIM not only generates interest from buyers but also eliminates the need for you to repeatedly answer the same questions for different buyers.
If you’re working full-time, this can be a huge relief. A skilled broker can prepare a thorough packet and handle surface-level questions from buyers, saving you significant time and stress.
Step 3: Vetting Buyers
Identifying and vetting buyers is a critical step. Start by defining your ideal buyer and the goals for your sale. Beyond the profits, ask yourself:
Who do I want the buyer to be?
Am I looking for a strategic buyer (someone already in the manufacturing industry), an individual buyer, or a private equity firm?
Once this is clear, your broker will use several approaches to find the right buyers:
Confidential Listings: Your business will be listed confidentially on platforms like BizBuySell, DealStream, Axial, or BizQuest to attract a range of buyers.
Broker’s Network: A good broker has a network of qualified buyers, including those in the manufacturing space, private equity firms, and individuals actively seeking businesses like yours.
Before hiring a broker, research their track record. Do they have a robust buyer pool? Have they sold businesses off-market due to strong relationships with buyers?
Remember, selling your business requires active outreach. A skilled broker won’t just list your business and wait—they will proactively market it to qualified buyers.
Step 4: Buyer-Seller Introduction Calls
Once your business is listed and your broker has generated interest, you’ll begin having introduction calls with buyers. These calls are typically scheduled after buyers sign an NDA and review your business information.
These initial calls, often via video or phone, are high-level discussions. They involve you, your broker, and the buyer, and serve as an opportunity to gauge interest and address any preliminary questions.
Your broker will lead the conversation, highlight the strengths of your business, and address any concerns buyers might have. This ensures a professional and efficient process.
Step 5: Letter of Intent (LOI)
After several calls with buyers, your broker will work to gather multiple Letters of Intent (LOIs). An LOI is a preliminary offer outlining:
Proposed purchase price
Terms of payment
Timelines for due diligence and closing
While an LOI represents an agreement in principle, it is not final, and terms can change during due diligence. Having multiple offers allows you to compare and select the best option.
Step 6: Due Diligence
Due diligence begins after the LOI is signed and typically lasts 30-90 days, depending on the agreement. During this phase, buyers conduct an in-depth review of your business to finalize their decision.
This phase often involves:
Facility tours
Requests for financial documents
Operational and legal questions
And any additional information buyers need
Be prepared for a detailed review. While most aspects of your business are open for examination, employees not privy to the sale are typically excluded from discussions.
Step 7: Purchase Agreement and Final Negotiations
As due diligence concludes, the buyer may propose final adjustments to the LOI based on their findings. While major price negotiations are uncommon at this stage, minor adjustments are normal.
Once terms are finalized, the buyer will present a Purchase Agreement. This document should be reviewed by your attorney and broker to ensure it aligns with the LOI and reflects any agreed-upon changes.
Your legal counsel will handle final edits before the agreement is signed.
Step 8: Closing and Transition
Closing day marks the official sale of your business, with funds typically transferred via wire. This milestone is the culmination of months of hard work and should be celebrated.
However, the process often continues with a transition period, negotiated during the LOI stage. This allows you to assist the buyer in taking over operations. A well-structured transition period can help facilitate a smoother sale.
Learn More
For more information about selling your manufacturing business or to discuss your specific situation, contact us at Kelliher Acquisitions. We’re here to help you determine the value of your business and guide you through every step of the sale process.