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Manufacturing Start-ups Face Interesting Option: Sell or Invest?

As one of the region’s signature industries, some manufacturing-based companies—particularly start-ups that are finding success in the market for the first time—are now facing an interesting option: invest more in the business by taking on equity and/or investors, or sell and move on to the next venture.

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As one of the region’s signature industries, some manufacturing-based companies—particularly start-ups that are finding success in the market for the first time—are now facing an interesting option: invest more in the business by taking on equity and/or investors, or sell and move on to the next venture.

As one of the region’s signature industries, some manufacturing-based companies—particularly start-ups that are finding success in the market for the first time—are now facing an interesting option: invest more in the business by taking on equity and/or investors, or sell and move on to the next venture. Both options could contain major benefits for manufacturing business owners, but both should also be explored carefully before any decision is made.  

For those choosing to remain in the business and take on equity and investors, it all comes down to choosing the right people, ones who have experience and past success in manufacturing. Manufacturing is an industry that requires meticulous inventory, meeting tight customer deadlines, having the right skilled labor, often intense regulatory compliance and ensuring that the entire operation runs with clockwork precision. Any investors that come into the business should have a high level of savvy in these areas if this path towards long-term growth is going to be successful. 

Going the equity route with investors requires the business owner to ensure that any partner brought on is the right fit for the both the long-term culture of the business as well as the management style the owner currently practices. This is about more than just making the most lucrative dealConsidering an equity partner could be someone who is involved in the business for years to come, the owner needs to know that their priorities and goals are aligned and everyone is poised to move in the right direction. What’s more, the partner needs to have a firm understanding of the true value of the business, and that understanding must also mesh with the owner’s 

Another critical dynamic will be trust – with key employees, customers and suppliers. Each of those parties developed relationships with the original owner, so they will need to be assured that the relationship is still there (if a partner is being brought on board)Or if exploring a sale, it will be important for the potential buyer to have the ability to quickly develop trust with those key parties to ensure they can transfer key contracts post-close, and the operations will not skip a beat when they transition under new leadership. 

For those considering the route of a sale, priority must be placed on having all of the business’ financials in the proper order. It’s likely that manufacturers in the early stage of their business cycle have never had an audit or review of their financial statementsIt will be imperative to have the appropriate level of work performed before any sale is pursued. That includes formal attest services to obtain an opinion on the financial statements from an outside accounting firm, and also potential sell-side diligence. It is more than a worthwhile investment of time to make sure that the financials are in order first, and then pursue or consider potential buyers. This investment of time and resources in advance of going to market will pay immediate dividends when a buyer is identified and they begin diligence of their own. 

Preparation for a potential transaction also goes beyond the financials of the business. On the human resources side, all policies should be updated and performing well before either avenue is pursued. This includes having a clear management structure that incorporates growth in operations, updated employee manuals, accurate employee benefit information, well-designed worker compensation policies and more. Such assurances will indeed make the business more attractive to both potential partners or buyers. 

The bottom line is this can be a time-consuming process, whether the ultimate decision is to sell or invest further. This can be a particular hardship on manufacturers still in the early stages of operations, who likely are more focused on keeping the business up and runningNo matter how tiring it may seem, taking the proper steps ahead of time is the best way to ensure future success, regardless of whether the decision is to seek investors or seek buyers for the business. 

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