planning meeting of middle managers at a manufacturing business

Finding the Market Value of Your Manufacturing Business

/ Business, Business For Sale, Business Ideas in the News, Capital Sources, Careers, Economy, Entrepreneurs, Ideas, Opportunity, Productivity, Running Your Business / By

It’s important to know the value of your manufacturing business to help gauge its overall health and longevity. Doing so also helps you plan your exit strategy if circumstances suggest it could be time to sell your business.

RELATED ARTICLE: THE IMPORTANCE OF PREDICTIVE MAINTENANCE IN MANUFACTURING

The manufacturing industry is known as one of the pillars of economic development. This is largely because it creates jobs while improving consumers’ quality of life. Recent data states that the global manufacturing sector is responsible for 17 percent of the world’s GDP. Moreover, industry watchers expect this industry to have significant growth within the next three years.

As a result, many manufacturing businesses have started popping up, from small family-run operations to major international brands. Since competition can be fierce, business owners need to step up their game for the sake of their brand and employees.

Here are three ways to find the current market value of your manufacturing business:

1. Valuation of Your Manufacturing Business Based on Selling Prices of Similar Businesses

One of the most accurate ways to know the value of your manufacturing business is to have it appraised by a professional analyst, such as the world-renowned IBEX Middle Market Business Brokers. Not only can you get a fair and honest look at what your business is worth, but you’ll also be working with professionals who use a combination of methods to value your trade.

A business valuation is crucial if you’re planning on selling. An inaccurate value could possibly pose a risk to the transaction. It can also deter potential buyers if the price is too high. On the other hand, an overly low valuation may result in your financial loss.

To help ensure a successful transaction, professionals use a few methods to get a rough estimate of the venture’s value. One of them is knowing the selling price of businesses that are highly similar to yours.

If there are manufacturing businesses within your area that recently sold, the business broker or analyst can gather information to determine the market value of your organization. However, keep in mind that the information might only be relevant if the other businesses and yours have a lot in common. Commonalities to find the best price might include the type of product you manufacture, revenue, and the number of years in operation, among others.

RELATED ARTICLE: SELLING THE BUSINESS? HOW TO DETERMINE THE BEST PRICE

2. Discounted Cash Flow

Will there likely be a demand for your products 10 to 15 years from now? If potentially yes, your business broker or analyst may use the discounted cash flow approach to find the market value of your trade. Rather than comparing your business with similar companies, this approach is based on estimated future financials of your business, such as projected earnings and growth.

If the calculated discounted cash flow (DCF) is higher than the current cost of your manufacturing business, then the transaction could result in positive returns. This is an advantage for the buyer. But if the DCF is lower than the cost, you should take another approach to determine the true value.

Also, note that since DCF is based on future estimations and cash flows, the calculated figures may turn out to be inaccurate down the line. While this approach can certainly entice potential investors, it may be better to consider other valuation methods in addition to DCF.

RELATED ARTICLE: POTENTIAL INVESTORS: FIND THEM FOR YOUR BUSINESS WITH THESE FRESH TIPS

3. Valuation Based on Your Business’s Assets

Asset-based valuation is perhaps one of the most straightforward ways to determine the current market value of your manufacturing business. This method uses the classic balance sheet approach: The liabilities are subtracted from the assets to calculate the company’s market value.

To guarantee the best outcome, you can work with your business broker to determine which liabilities and assets to include in the valuation. Make your decisions based upon a check of the assets before the valuation process. This is because assets should be in fairly good condition and fit for modern manufacturing processes.

Some assets that may be included are:

  • Machinery
  • Furniture
  • Equipment used to create products

Intangibles that might also be included in the valuation could be:

  • Technology used
  • Trade secrets
  • Patents
  • Trademarks
  • Formulas

Last Points: How To Find the Current Market Value of Your Manufacturing Business

Knowing your manufacturing business’s current market value can help guarantee that your company sticks around even after selling it to a new owner. Consult an experienced business broker or valuation analyst to explore all valuation methods to get the most accurate figure. Hopefully, a hassle-free and smooth transaction is in your future.

Must Read