Value Drivers for an Apparel Manufacturing Business
The apparel manufacturing industry was no exception to the pains of the pandemic. Clothing industries had to close their doors and move online. Because of that, business plans needed adaptation and modification to reflect the current situation. While the pandemic has been difficult, the apparel manufacturing industry still sees success. In fact, in 2021 and over the next five years, industry revenue expects to grow at an annualized rate of 1.3%. Due to this, now is a great time to enter or exit the industry. Understanding the value of an apparel manufacturing business is key to buying or selling.
If you are buying, selling, or trying to grow your business; consider a business valuation. In the valuation process, our business appraisers look at trends, historical data, and projections to determine the value of your apparel manufacturing business. Our business appraisers at Peak Business Valuation also discuss specific value drivers of your business. This article gives you several examples of key value drivers for an apparel manufacturing business. To schedule your free consultation, contact us below.
Value Drivers for an Apparel Manufacturing Business
Below are specific value drivers for an apparel manufacturer. Understanding value drivers can help you make plans for growth. For any questions, schedule a free consultation with Peak Business Valuation, business appraiser.
World Price of Cotton
The price of cotton is very volatile, as are most commodities like steel or oil. Because of this, the price of cotton affects the financial performance of an apparel manufacturer. At Peak Business Valuation, our business appraisers will look at historical price averages to better understand a company’s operations for a normal year. This is often a stronger indicator of value.
Recurring Revenue
Recurring revenue is one of the most important value drivers for an apparel manufacturer. Apparel manufacturers supply bulk items to clothing stores around the United States. Because of this, manufacturers need contracts with other businesses to be their suppliers. One-time supply deals are not very beneficial to an apparel manufacturer. Having contracts in place creates consistent revenue for the apparel manufacturer.
Recurring revenue is worth more than any other type of revenue. As such, it is worth more in a business valuation report. Peak Business Valuation performs valuations for manufacturing businesses across the nation. They will consider each of your revenue streams when valuing an apparel manufacturing business. To understand the value of your apparel manufacturing business, contact us below.
Overseas vs. Local Production
In the late ’80s, early ’90s, most apparel manufacturing facilities moved overseas. This cut production costs and increased profits. However, in recent years, certain companies have decided to bring their production back to the United States. There are several reasons for this. Some Americans may show more support for American-made products. As such, they may not care about the increased prices that come with better labor laws. Another reason is that shipping is significantly quicker when produced in the states. While those benefits are worth it to some, they aren’t to all.
Whether your apparel manufacturing business chooses to work overseas or locally, know what benefits your business most. No matter what you choose, there will be costs. A great way to determine if your production choice is working is to receive a business valuation. Peak Business Valuation, business appraiser, provides valuations to individuals who are buying, selling, or growing their apparel manufacturing business.
Technology Advances
Technology is a great way to set your manufacturing business apart. With constant updates in technology, it is important to implement technological advancements into your manufacturing processes. Technology is very useful when keeping on top of employees, projects, or processes. Oftentimes, factories are sourced overseas, making the use of technology essential.
In addition, apparel manufacturers use many types of machines and equipment. These machines are often costly but an investment. Some business owners may have a difficult time transitioning to the latest technology. This is due to the expensive costs and overwhelming transitions. However, technology can bring significant benefits to your apparel manufacturing business. Machines increase productivity and efficiency and lower labor demand which decreases expenses. This value driver is a great way to stay ahead of the competition.
Product Mix
The fashion industry is difficult to stay ahead of. Trends, preferences, and seasons constantly change. A manufacturer needs to be aware and ahead of the style preferences. A great way to do so is by working with your marketing and production teams. Another thing to consider is that women’s apparel makes up 56.5% of the industry. Consider targeting one market, especially women’s apparel.
Next, determine apparel styles to produce and stay ahead of trends. Make sure to offer a diverse product mix. If your business can expand and reach many different markets, consider doing so. A diverse product mix has the potential to increase the value of your business.
When valuing an apparel manufacturing business, a business appraiser will look at your product mix and operating/profit margins. They will compare your operations to those of similar apparel manufacturers.
Summary
Business owners who pay attention to value drivers will see success. If you want to buy or sell an apparel manufacturing business, value drivers should be on your radar. To improve the overall value of your business, focus on the key value drivers for an apparel manufacturer. See Valuing an Apparel Manufacturing Business, as well as Valuation Multiples for Apparel Manufacturing and How to Value an Apparel Manufacturing Business for more information.
Whether you are buying or selling, a valuation is beneficial to your apparel manufacturing business. In the valuation, our business appraisers at Peak Business Valuation will analyze and discuss key value drivers for your apparel manufacturing business. A business appraisal will also determine the fair market value of your apparel manufacturing business. Get started by scheduling your free consultation below.
