Valuing a Manufacturing Business

Valuing a Manufacturing Business

The manufacturing industry includes several types of businesses. Businesses could include manufacturing food, electronic products, metal, machinery equipment, textiles, wood and paper products, and many more. There are many factors that impact the ups and downs of this industry. We will discuss a few of them in this article but understand there are many more. This article also discusses the basics of valuing a manufacturing business.

The following information gives you a general understanding of how to value a manufacturing business. Our business appraisers at Peak Business Valuation can give you specifics on your manufacturing 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. 

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Market Multiples for a Manufacturing Business

  • SDE Multiple Average: 2.68x – 3.54x
  • EBITDA Multiple Average: 3.54x – 4.19x
  • REV Multiple Average: 0.54x – 0.79x
**Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.

The above are average market multiples for a manufacturing business. A valuation expert often uses multiples when determining the value of a business. Knowing the value of your manufacturing business is important. Understanding your manufacturing business’s worth can help you take steps to increase the value. This is important whether you expand, acquire, or want to increase the value of your business before selling. Here are a few ideas to increase the value of your manufacturing business. If you want specific information on your business, schedule a consultation with Peak Business Valuation, business appraiser. 

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Key Value Drivers for a Manufacturing Business

Peak Business Valuation, business appraiser, values manufacturing businesses on a regular basis. Below are a few success factors that will help distinguish your manufacturing business. They will also help increase the value of a manufacturing business. 

Product & Service Mix

Manufacturing includes several sub-industries. Because of this, there are many products and services to offer. Targeting specific customers or businesses with products and services can help increase revenue. It is important to understand what market you want to target. Once this is determined, your business should specialize in a service or product for that market. A business appraiser will look at similar manufacturing companies to yours and average product and service mixes. 

Cost of Materials 

The manufacturing industry is greatly affected by the cost of certain materials. This can include lumber, steel, metal, oil, etc.. Because of this, the price of the commodity affects the financial performance of the company. Our professionals at Peak Business Valuation will look at historical price averages to better understand a company’s operations for a normal year. This is often a better indicator of value.

Economic Health 

One of the biggest hits this industry took was at the start of the pandemic. With government mandates to stay at home and temporarily shut down the business, manufacturing was severely hurt. It took a 7.7% decrease in sector revenue. However, over the next five years, the industry is expected to increase in annualized revenue by 0.5%. Economic health has a significant impact on the value of manufacturing businesses. 

Local Support

One of the highest costs in a manufacturing business is the transportation of materials. A great way to lower costs and increase gross profit is to sell products locally. Creating strong connections with local businesses will bring in consistent revenue and profits. With manufacturing businesses dotting the nation, it is essential to be a top provider in a set geographic area. 

Partnering with local companies increases the visibility of your business. With the help of others, your revenue and clientele will increase. It will also bring in recurring revenue, which is very valuable to successful businesses.

Use of Technology

No matter your business, technology will benefit the value. The use of technology to increase productivity and proficiency will help your manufacturing business function at its optimum. The manufacturing industry is going through a digital transformation. Processes that were once done by people are now done by machines. While the transformation is initially expensive, it is an investment. These machines and technology can bring many positive benefits to your business. They will increase productivity and decrease labor needs, which can increase overall profits. 

Technology is very overwhelming for some business owners. Getting staff on board who are excited and willing to use this technology is a great way to start the transition. Machines and technology will support the success of your business if used properly. Technology can also be a great way to keep track of progress, projects, and clients. During a valuation, the use of technology will be considered in relation to the value of your business. 

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Summary

There are multiple important considerations when valuing a manufacturing business. Understanding the value of a manufacturing business is necessary whether buying, selling, or growing a business. Receiving a business valuation will help you understand the fair market value. A business appraisal can also help you recognize opportunities to maximize the value of a manufacturing business. 

Peak Business Valuation values manufacturing businesses across the country. We would love to answer your questions you may have about the value of your manufacturing business. You can reach out via email or by scheduling your free consultation below. 

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