I'm getting ready to list my manufacturing business and I'm trying to get a realistic number. We have a decent amount of machinery (some newer CNC stuff, some older gear) and a warehouse full of raw materials and finished goods. My broker gave me a ballpark but it felt like he was just guessing on the equipment and inventory part. How do you actually factor that stuff into the total value without getting lowballed? Do buyers even care about the old machines or do they just want the customer list?
Valuation
How to factor your equipment and inventory into your total value
Buyers care, but not the way yo want them to. Old machines are often valued at scrap or 'removal cost' unless they're actively producing revenue. The newer CNC is a different story. Get an independent appraisal, don't let the broker wing it.
Inventory is the biggest trap. Everyone thinks their inventory is worth what they paid. It's worth what it would cost to rePlace it *today* minus anything obsolete. If you've got 10-year-old finished goods sitting there, that's not an asset, that's a liability.
what Kind of manufacturing? that changes everything. heavy metal vs plastics vs food grade is wildly different for equipment resale
Precision metal parts. Mostly aerospace and some automotive. The old stuff is manual lathes and mills, maybe 3 of them still run regularly.
Manual lathes? Yeah those are basically boat anchors for valuation purposes unless you find a hobbyist. Sorry.
I sold a machine shop two years ago. The equipment got valued at about 40% of what I thought it was worth. The inventory got valued at 60%. The customer list did all the heavy lifting. Just temper your expectations.
Also, are you doing a asset sale or stock sale? That changes how inventoryy gets treated on the balance sheet and what the buyer actually assumes. Might be worth asking your accountant before your broker.
aerospace changes things. if those old machines are part of a qualified process that can't easily be replicated, they might have value beyond scrap. but you'd need to prove that with documentation. most buyers won't take your word for it.
I've bought two businesses. When I see a warehouse full of inventory I immediately assume half of it is junk and mentally discount it before I even walk in. The seller always thinks it's gold. It's never gold
plumb_crazy speaks the truth. Also, the buyer is going to do a physical count. If your books say 100k in inventory and the count comes back at 60k, the deal re-trades or dies.
Wait, can someone explain what 're-trades' means? Never sold a business, just lurking.
means the buyer comes back after due diligence and says 'actually we're paying less now.' Happens all the time with inventory adjustments.
So basically I need a real appraisal and a hard look at what's actually sellable vs what's just taking up floor space. And maybe stop assuming my broker has this figured out. Appreciate the reality check, even the boat anchor comment.
one more thing — get the appraisal done before you sign anything with the broker. Some of them have their own guys and surprise, the numbers come out however they need them to.