Selling your woodworking business is difficult. Woodworking business owners see their business as an extension of themselves and want to ensure the business continues to perform after they step away. It takes a lot of blood, sweat and tears to grow a business, and that makes selling it hard. During my 20 years of experience as a business broker, I have helped woodworkers sell their business at top value. Here are a few tips to position your shop for sale.
When is it time to sell?
Selling your shop is a long-term process meaning you should prepare before you sell. Plan your exit two years in advance. This allows you to continue to grow your woodworking business. A couple years of positive growth trends will make your shop more appealing to potential buyers. Simply put, a woodworking business that makes money is easier to sell.
Shops with good valuations require owners to make sure the business maintains a level of success. If all you are doing is selling your business and not thinking about maintaining good service, the valuation will suffer.
Contact a professional to explore your options before considering selling.
Woodworking business owners set valuations on their place of business without looking at the realities of the market. Many owners don’t understand that just because one shop sold for one amount it does not mean they’ll get the same value.
Put yourself in the shoes of a potential buyer. Ask yourself the questions you might ask. Do I believe the business will do better in the future? Do I want to be an absentee owner or put in hours at the shop? Do I need to hire new management and staff? Are any upgrades needed to perform better?
Understanding what a potential buyer is thinking and how the market is trending makes it easier for you to navigate the process of selling.
Determining sale price
The value of your woodworking business depends on a number of variables, including financials, the owner’s role, how many hours they work a week, depth of management, quality of the books, and how business is trending year over year.
Proper financials should consist of at least the last three years of income statements and balance sheets, and corresponding tax returns. A profitable business is valued based on the seller’s discretionary earnings. These earnings are the pretax and pre-interest profits before non-cash expenses, one-time investments, and any non-related expenses. The better the discretionary earnings, the more value you will get for your business. If the profit is trending up, you will get a better deal in the end. Businesses on a downward trajectory often don’t sell, and if they do the price will be affected by the current trend.
Maintain, acquire the right equipment and people
It is important that you have the right equipment before you sell. Your woodworking shop should have high quality and well-maintained CNC machines. It is also important that you have an employee capable of operating the equipment.
It is imperative that you as the owner are not the only person with experience to work this machinery. A potential new owner wants to focus on managing and growing the business. If a new owner has to spend time fabricating or hiring someone who can, it will make your shop less appealing. Make sure you have a dedicated team ready to work for the new owner so they can focus on management and growth.
Maintain high-quality standards while trying to sell your business. This means ensuring you are meeting OSHA standards and have no outstanding OSHA violations.
Make sure all equipment you use is functioning and well maintained. A buyer might not purchase a business that requires thousands of dollars in repairs. You don’t need expensive upgrades; you just need to maintain your equipment. If something is on the verge of breaking, disclose this to the buyer and adjust the price of your business accordingly.
Maintain a strong client pipeline
Woodworking businesses that get a strong valuation have a good backlog of orders when they sell. One of the main benefits of buying an existing business is having that businesses pipeline of clients. A potential buyer will not want to purchase a shop that has no upcoming work or leads. It is important to have a diverse client list. A company with a mixture of long term and short-term work is more appealing.
Selling your woodworking business is an intricate and personal process. By creating a proper sales plan and hiring a reputable broker you will put your shop in the best possible light and put more money in your pocket.
Bio: Brian Bond is the Principal and leading business broker at Strategic Business Brokers Group, a brokerage firm in Scottsdale, Arizona. Collectively, they have helped dozens of contractors sell their business.
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