As the supply chain tightens, manufacturing companies are in increased demand, especially those that have found a way to work around supply chain shortages and the global uncertainty wrought by the COVID-19 pandemic. If you’re considering folding a second or third business into your own, or investing in a new manufacturing company for the first time, asking the right questions can ensure you make the most of the deal, while minimizing risk. Ask these questions before buying a manufacturing business.
How has this company performed during COVID?
COVID put every company to the test, especially manufacturing businesses. It’s expected that some companies would see a downturn during the pandemic. Nevertheless, how the business handled the pandemic reveals much about their ability to think creatively and flexibly. Did the company find ways to protect its staff and clients? Or did it cling to the ways o the past, unable to see another way of doing things? Did it generate new business, develop new technologies, and make the most of a challenging economic environment? Or did it just keep waiting for COVID to go away, denying the reality of the situation?
What is the future of this manufacturing sector?
No matter how strong an individual company appears, it’s important to look at the larger niche in which it operates. Is the niche growing? Or are you investing in a sector that may eventually cease to exist thanks to changing technology, shifting mores, and automation?
What is the long-term strategy here?
How is this company planning to compete in a 21st century economy, and what can you do to make it even more competitive? Good investments have good strategies. Bad investments keep doing things the way they have always been done, and hope for the best. You should have a clear vision for the future of the company, and that vision should be firmly rooted in past performance and evidence-based forecasts.
Is the company financially healthy?
Sometimes it’s a good idea to buy a struggling company and then grow it into something better, but only if you have specific experience doing so and a strong plan for getting the company back on track. In most cases, these struggling companies are money pits. You need to ensure the business is financially healthy. This means taking a long hard look at financial statements, conducting due diligence, and evaluating any potential liabilities, including possible lawsuits. Look also at financial forecasts, which may help you thoughtfully assess where the company may be in a few years.
What will I do differently as owner?
Ideally, prospective owners should have a plan for what they intend to do differently—and better—to promote greater profitability and growth. If you can’t identify specific changes you intend to make in the company’s operations, then you should not expect it to grow. And if you’re not clear about the overall operational picture of the company, it’s critical to get these details before even considering making an investment.