Building a great sign manufacturing business requires years of dedication and savvy decision-making. Yet creating a consistently profitable business is only step one. To be completely successful, you have to exhibit the same determined preparation and analytical thinking when it’s time to exit.
The reality is buyers are going to work every angle possible to get better terms. If they get those terms, they are helping themselves to an additional portion of the value that you helped to create. However, if you come prepared, you can help ensure that you exit the business on your preferred terms, and that you receive every bit of the payout you deserve.
To assist you, we’ve created the following guide to selling your manufacturing business. After you read it, you’ll be armed with the knowledge necessary to ensure a level playing field and a premium valuation.
So let’s get started by addressing some of the most fundamental questions of interest to business owners in your position.
How Do I Value My Business?
Understanding the value of what you’ve built is an essential early step in the sale process. There are plenty of conventional methods to estimate value, including EBITDA multiples, asset-based valuation, and comparable sale benchmarks.
However, some industries have wrinkles that make formulaic estimations less useful. In sign manufacturing, you’re dealing with lots of equipment, for example. Valuing this equipment correctly may require a more sophisticated contextual evaluation.
Here’s an example: On one hand, a buyer may assign a lower value to depreciated equipment when using a conventional accounting metric. Yet this may not capture the true economic worth of the equipment as it functions together as a production system.
Specialized fabrication equipment, CNC routers etc. can retain operational utility far beyond their depreciated value. They may also face obsolescence in the event of new innovations. These sorts of contradictions are poorly reconciled by standard valuation methods.
A more refined valuation may use more than one framework while incorporating nuances specific to the industry. Savvy buyers know this and will exploit it, hoping unprepared buyers will be swayed by valuations that are wedded more to accounting conventions rather than operational reality.
What Makes a Sign Manufacturing Business More Valuable?
Smart buyers are always looking for a few core attributes in their targets. These include a diverse client base and revenue mix, which reduces the risk associated with having your fortunes tied to one or two key clients. Longer-term agreements are attractive, especially those with municipalities or large enterprises.
Any custom manufacturing processes or specialized workflows or equipment setups can also improve your valuation. The skill of your workers, whether they are fabricators or designers, is also a value driver, especially in more specialized areas such as LED integration of architectural signs).
If you have streamlined production systems that boost profitability or other operational efficiencies, these should be highlighted. The same is true for your market position if you dominate in any industry niche. This may be especially attractive to strategic buyers.
How to Get Ready for an Exit
Pristine record-keeping is always a boon for any business sale. Having a full set of business records going back at least 3 years and preferably longer is a must. This should include profit and loss statements, balance sheets, cash flow, tax returns and anything that supports your reported numbers. Sales breakdowns by service category or product line, a precise inventory, lease agreements, and other documents should all be carefully kept. Transparent and complete records give buyers the confidence to offer premium valuations.
Showing operational documents for the business, such as detailed process maps for workflows and quality control procedures, is another important step. You want to validate the efficiency of your business by showing that it is built on a solid and transferable foundation of smart processes.
Records of vendor relationships and customer histories (including their requirements or preferences) are highly useful. Additionally, your designs and templates may represent significant IP value, so ensure you have a detailed archive. Equipment maintenance records will also reassure buyers you’ve been treating your high-value capital assets well.
How Do I Improve My Business Before a Sale?
Just like you’d undertake some repairs to your home before selling it, you may want to improve your business so it’s seen in the best possible light. If possible, you should reduce or eliminate inefficiencies, diversify your revenue mix and client base, roll out exciting new products or services (within reason, as you may not want to take on major projects before selling), sign key workers to retention agreements, settle any outstanding litigation or compliance/permitting issues, and take care of any deferred equipment maintenance.
Additionally, take a close look at existing client and supplier agreements to ensure the terms are attractive and the contracts are transferable. You may also wish to develop a scaling strategy for the new owner, a nice bonus that can get a buyer more excited about the prospects of the business.
Who Will I Sell To?
Strategic buyers are typical acquirers of sign manufacturers. These are your competitors or businesses in related markets, such as printing firms. These buyers may want to expand their geographical boundaries or grow their client base. Eliminating competition and developing new capabilities are also common motivations for strategic buyers. Because of the nature of these benefits (some of which accrue only to them) strategic buyers may be willing to pay a premium.
Private equity or other financial buyers are another frequent purchaser in this industry. These buyers are generally looking for companies with growth potential and sustainable cash flow. They like management continuity and may consolidate if possible. They may also make decisions based on other companies in their portfolios, if synergies are possible. Financial buyers are intently focused on ROI and performance metrics.
Individual buyers are entrepreneurs or executives who want to become owners. Often, they require an extended training period, so they may be keenly interested in managerial continuity, and may ask owners to stay on in some capacity post-sale.
Why Discretion is Critical
Confidentiality is important in almost any business sale. You don’t want workers becoming prematurely alarmed, or competitors pouncing during a period of perceived vulnerability. Yet the sign manufacturing business is especially sensitive to discretion, as it features proprietary designs and many long-standing customer relationships. Relationship capital and process knowledge must be zealously guarded.
To avoid having designers or clients poached, confidentiality is paramount. This should go beyond standard NDAs. Other techniques, such as blind profiles or compartmentalized information access, can help build a wall of discretion around the transaction.
To be candid, such cloak-and-dagger tactics are generally not the strong suit of business owners. Working with an experienced advisor is helpful here, as they have the domain expertise to devise a comprehensive confidentiality strategy.
Working With Advisors: What to Know
We’ve already talked about confidentiality, but that’s only one of the advantages to be gained by working with an industry professional. An M&A advisor/business broker can also create a pool of highly qualified buyers. They have an existing network of buyers to leverage and this can streamline the process of creating a strong bidding market.
Advisors are also valuation experts. They know the nuances that are missed by standard valuation frameworks. They know what your business is truly worth, and they have the negotiation expertise to get a premium price. You’re not going to leave money on the table through inexperience when working with a professional.
Advisors are also experts in deal structuring. This is just as important as valuation. Tax consequences, future risk mitigation, post-sale involvement can all be deeply tied to the structure that is chosen. Not paying enough attention to structure is a frequent seller’s regret.
Having a deal derailed at the 5-yard line is a worst case scenario. An advisor carefully shepherding a deal through each stage, from marketing and negotiation to due diligence and closing, can ensure this complex process doesn’t fail.
Finally, working with an expert enables a seller to focus on what they do best: Running an outstanding business.
What Else Should I Know?
Now that we’ve covered the basics, let’s quickly go over some other details that may be useful.
If you have a large archive of designs you’ve built up over the years, this can mean a premium for certain buyers, especially in specialized niches. The same is true for any custom color formulations or production templates you’ve developed. Transferable operational knowledge is an asset.
Since this industry is equipment-heavy, you should also pay attention to the equipment lifecycle. If major pieces are nearing the end of their usefulness, buyers will factor in replacement costs. You’ll want to consider whether it makes sense to adjust your pricing expectations or replace the equipment (or sell at a different point in the lifecycle). Maintenance records, if well kept, can also help reinforce the value of older equipment. Software licenses (including transferability of design software or production management systems) should be checked and updated.
You may want to get in front of any environmental issues regarding your chemical inventory. Make sure you can document compliance with any regulations around storing and disposing chemicals. All permits should be up to date and transferable, and proper disposal of any hazardous materials should also be documented.
Finally, your workers will be an important factor for buyers, as many of their skills are not easy to replace. Documenting the skills or specialized techniques they have mastered, mitigate any dependencies on “key person losses” by cross-training workers, and ensure that all employee certifications and employment structures are current and transferable.
The Takeaway
You’ve already done the hardest part by building a great business. The last thing any business owner needs is to fumble the opportunity to be rewarded for all that hard work. With plenty of preparation and professional guidance, you can ensure that doesn’t happen.
Start preparing early, at least a year in advance. Get your documents in order and your business running efficiently. Then, select the right advisor, one with a long and distinguished track record of selling businesses in general, and sign manufacturing businesses specifically.
With foresight and patience, you can achieve a premium valuation, attractive deal terms, and then get started on the next chapter of your life.
