Value Drivers for an Iron & Steel Business
Manufacturing industries are often sent overseas. With that in mind, there are only 200+ iron & steel manufacturers in the nation. Because iron & steel manufacturers are far and few between, it is important to pay close attention to key value drivers. Value drivers are the reasons behind a successful business. A value-driven business will find they are more organized, profits are higher, and the value of their business has increased.
Like most industries, iron & steel was heavily impacted by the Covid-19 pandemic. Manufacturing is a global industry, with supplies made and sent all over the world. Because of the global shutdown, the industry was disrupted. However, with the price of steel skyrocketing and demand increasing, 2021 was a great recovery year. As such, now is a great time to consider buying or selling an iron or steel business. The first place to start is by understanding the value of your iron and steel manufacturing business.
Understanding what drives the value of iron & steel manufacturers is a great start. Value drivers impact a business whether buying, selling, or increasing its value. A great way to learn specific value drivers for iron & steel manufacturers is obtaining a business valuation. A business appraiser at Peak Business Valuation will discuss specific value drivers for iron & steel manufacturers during the valuation process. A business appraisal will also help you understand what your iron & steel manufacturing business is worth. Contact us below for your free consultation.
Value Drivers for an Iron & Steel Manufacturing Business
Below are specific value drivers for iron & steel manufacturers. Understanding these when buying a business can help you make growth plans. If you plan on selling a business, a business appraisal can help determine a listing price and in negotiations with potential buyers. For any questions, schedule a free consultation with Peak Business Valuation, business appraiser.
Price of Steel
The price of steel is very volatile. The price reflects the global supply and demand of steel. Industry operators usually benefit from higher prices of steel. When demand goes down, the industry struggles to keep up with increasing prices.
A business appraiser at Peak Business Valuation will look at historical price averages to better understand an iron & steel manufacturer’s operations for a normal year. This is often a better indicator of value. For questions on the fair market value of your business, contact us by scheduling a free consultation.
Recurring Revenue
Manufacturing industries heavily rely on recurring revenue to survive. Marketing is costly and time-consuming. Having one-time clients is not very beneficial to the manufacturing industry. Iron & steel are costly supplies that take time to produce and supply. The iron & steel industry mainly sells to the automotive and construction industries. Monopolizing these industries will bring in the most revenue. Be willing to put in the time and effort with these clients. Contracts play a large part in recurring revenue. They are also the most valuable when a valuation expert values an iron and steel manufacturing business. This value driver is more than worth it. Be more information see Growing Your Business Through Recurring Revenue.
Product Mix
Most iron & steel manufacturers are based overseas. With only 200+ iron & steel manufacturers in the United States, it is important to specialize and diversify your product. Pre-pandemic, the automotive and construction industries were the biggest clientele for iron & steel. As the pandemic continued, these industries were hit hard. They experienced a decline in demand and revenue. This has affected the iron & steel industry as auto and construction were their biggest sources of revenue. Be willing to adapt to market demand and needs. Focus on certain products and industries that are still in need of supplies. Your product mix might change over time as the pandemic continues. The valuation expert valuing your iron and steel business will look at your product mix and compare it to industry averages.
Access to Raw Materials
As mentioned above, the price of iron and steel is constantly fluctuating. A great way to lock in prices is by signing contracts with suppliers. These contracts can help regulate costs for your company. With shortages happening, contracts will help ensure you receive the supplies your iron and steel business needs. Make sure to prioritize this value driver. Having supplies on time and in stock will encourage positive customer relationships. And help you keep your revenue trains running on time.
Financial Structure
Iron & steel manufacturers experience high fluctuation in demand. In 2015, the iron & steel industry experienced a -19.70% decrease in revenue in comparison to an increase of 15.20% in revenue in 2018. It is best to structure your business’s financials to allow for extreme highs and lows. These fluctuations are bigger than the average eye may realize. This is due to the price of the commodity. If an owner is not careful, they might not make it through the low years.
When selling your business, a buyer will look for a business that is stable no matter the profits from the year. When valuing your business, the valuation expert will look at your financial structure and history. They use this information and will compare it to similar companies. A business appraisal will help you understand the strengths and weaknesses of your financial position.
Summary
Learning and implementing value drivers can increase the value of your iron & steel manufacturing business. Value drivers should be at the forefront of a business owner’s mind whether they want to buy, sell, or maximize the value of their business. Receiving a business valuation will determine the fair market value. It will also determine opportunities to maximize the profits and value of an iron & steel manufacturing business.
Peak Business Valuation, business appraiser, values iron & steel manufacturers across the nation. We would love to discuss any questions you may have about the value drivers and value of your business. Contact us by scheduling your free consultation below.
Be sure to also take a look at Valuing an Iron & Steel Manufacturing Business, Valuation Multiples for Iron and Steel Manufacturing, and How to Value a Steel Mill.
