The machine shop and Precision machined products industry is very desired and can be a very sellable type of business. When you are trying to evaluate the possibility of selling your business there are a number of factors to look at to determine if your business is sellable and to get a good idea of what your business is worth. Whether you own a Job Shop or a production type shop there is a market to sell this type of machine shop.
Key areas to evaluate:
A simple report that you can find in Quickbooks is “Revenue by Customer”. This report shows how total revenue is distributed among your customer base. Customer concentration affects value because it has the potential to determine the success or risk of a business future and can significantly affect the closing price.
Types of Customers
Manufacturing in the US is affected by the economy. While this is an obvious statement, the customers you may have come in different categories when it comes to HOW the economy affects their business and therefore affects your business. It is important when valuing a Machine shop to look at the industries that your clients serve: Medical, Automotive, Aerospace, Oil and Gas, maintenance products, construction, or Retail. Each one of these sectors (and many more) are effected by the economy in different ways. Business buyers are looking to buy a machine shop that is or has the potential to grow rather than shrink.
Certifications are a good indicator of systems and processes that you have in place for your business. It is a proven fact that businesses with well-organized processes are more valuable than those that have less structure. The International Organization for Standardization (ISO) provides a certification that is important to strategic buyers and has an impact on the impression of financial buyers. Certifications such as ISO 9000 traditionally help the value of the machine shop significantly.
Having Machinists that have earned tenure can certainly help, as well because skilled machinists are difficult to find. Employee turn-over is always an issue with shop help but companies that have low turnover are typically more desirable.
The condition of machines and the level of technology within the shop are significant influences that can affect the price of your machine shop. Short run machine shops using design and prototyping capabilities could demand a premium. Any equipment that needs to be repaired or replaced should be taken care of before attempting to sell your machine shop.
WIP and Raw Materials
Work in progress is extremely important when selling your machine shop, as are raw materials. Production costs include materials and labor used in producing goods as well as allocated overhead. Backlog, a line-item expense for repairs and maintenance, availability of qualified labor, and client industry trends are all issues a potential buyer should investigate in valuing a machine shop.
Once we have accessed the areas above we can begin looking at the financial performance of the machine shop. While only a professional business broker has the proper expertise to provide the business valuation of your machine shop, the following formulas can give you an idea of what the value of your business will be and how our business brokers determine the sales price.