Value Drivers for a Manufacturing Business
The manufacturing industry was severely impacted by the Covid-19 pandemic. This industry includes several sub-industries. Some of these include food, metal, steel, oil, wood/paper, etc… Because of the variety, owners of manufacturing plants get resources from all over the globe. With most of the world shutting down, manufacturing businesses struggled to receive supplies from their suppliers. This brought in a 7.7% decline in sector revenue in 2020. However, revenue bounced back in 2021, but supply chains continue to experience problems. They are projected to continue to increase in revenue over the next five years. These factors all impact the value of a manufacturing business.
This article gives you several examples of key value drivers for a manufacturing business. Our business appraisers at Peak Business Valuation will discuss specific value drivers to your business. In the valuation process, we look at trends, historical data, and projections to help determine the value of your manufacturing business. To schedule your free consultation, contact us below.
Value Drivers for a Manufacturing Business
Below are specific value drivers for a manufacturing business. Understanding these when buying a business can help you make plans for growth. Whereas if you plan on selling a business, a business appraisal can help you negotiate with potential buyers. For any questions, schedule a free consultation with Peak Business Valuation, business appraiser.
Recurring Revenue
Recurring revenue is one of the most important value drivers for a manufacturing business. Manufacturers often supply to other businesses. Because of this, business owners should create contracts with other businesses. One-time supply deals are not very beneficial to a manufacturing business. Once contracts are in place, the manufacturing business has consistent revenue coming in. For example, a company that supplies gas to gas stations would create a contract to be the main supplier.
Recurring revenue is worth more than any other type of revenue. As such, it will be valued more in a valuation report. Peak Business Valuation performs valuations for manufacturing businesses across the nation. For your valuation, contact us below.
Selling Locally
The next best way to cut costs and increase profits is to supply your product locally. This cuts down on transportation costs, which can be a hefty expense. Partnering with local companies increases the visibility of your business as well. People like to support local companies. The goal is to become a top supplier in a set geographic location. With over 600,000 manufacturing companies in the United States, it is important to set yourself apart. Selling local is a great way to market your products and avoid transportation costs.
Adapting to Market Demand
Global competition continues to increase. Because of this, it is important to be agile to the market demands. Being willing to implement new products or processes is a great way to stay on top of the game. Lack of adaptability will prohibit growth. It also results in lost revenue and missed opportunities. Create a team that is willing and able to adapt to the changing world.
A manufacturing business supplies products and services. These products need to be in high market demand or they will not sell. A manufacturing business that follows trends and customer demand will do well. This value driver is a simple way to stay ahead of the competition. A manufacturing owner that is focused on value drivers will always keep market demand on the top of their priority list.
Technology Advances
Technology is a great way to advance your business. With constant updates in technology, it is very important to implement technological advancements into your manufacturing processes. Technology is very useful. It comes in handy especially when managing several products or processes within your business. Oftentimes, factories are sourced overseas, making the use of technology essential.
Technology also includes machines you use to produce products and services. These machines are an investment. Some owners have a difficult time transitioning to the latest technology because it is expensive and overwhelming. While that may be the initial feeling, it can bring significant benefits to your manufacturing business. Machines increase productivity, efficiency, and lower labor demand which decreases expenses. Technology in the manufacturing industry is a key value driver.
Summary
Business owners who pay attention to value drivers will see success. If you want to buy or sell a manufacturing business, value drivers should be on your radar. To improve the overall value of your business, focus on the key value drivers for a manufacturing business.
Whether you are buying or selling, a valuation is beneficial to your manufacturing business. In the valuation, our business appraisers at Peak Business Valuation will analyze and discuss key value drivers for your manufacturing business. Get started by scheduling your free consultation below.
Be sure to also take a look at Valuing a Manufacturing Business, How to Value a Manufacturing Business, and Valuation Multiples for a Manufacturing Business.
