Focus through the finish line

We often work with business owners focused on manufacturing and production in various industries who are at a point where they’re ready to sell their business. One of the most common mistakes we see is owners who – because they’re convinced they’ve already found the right buyer and, as a result, are psychologically ready to retire – stop putting the same level of daily effort into their business which brought them so much success.

For us, unfortunately, this is like watching a basketball team that’s been leading the entire game by playing aggressively but then decides to stall and slow down their offense in the final minutes of the game to try and preserve its lead. Oftentimes, as any of you who are sports fans have probably seen, this disrupts their flow, stops their momentum, and creates a messy ending – or even a loss for the team.

In business acquisitions, the current buyer or transaction often does not proceed as planned, leaving the business owner to attempt to re-engage themselves in the business after they've already mentally prepared for retirement.

In the context of machinery and equipment appraisal, the most obvious sign of this is deferred maintenance on the capital machinery and equipment. The business seller may have improved their short-term cashflows and headaches by putting off machine refurbishments or component replacements, but now they will pay the price (literally and figuratively!) when they have to make up for this with increased investments in the following year which they put off in the preceding year.

This can give the false impression that maintenance expenses are increasing year over year, which will make a buyer feel an increased risk in acquiring the machinery. In reality, maintenance expenses are likely holding steady, but were deferred for a period of time.

A better plan for a shop owner is to commit to all required M&E maintenance investments in the years prior to marketing the business. This should result in steady or even reduced maintenance expenses in the year preceding sale, which will help demonstrate to buyers that the seller has set the business up to succeed in the long term by continuing to invest even while preparing for sale.

As an added bonus, if the business owner does not succeed in selling the business right away, they will be able to continue operating a business which has been set up for their own future success, as opposed to being dragged along by a business which they have already mentally abandoned and with increasing deferred expenses piling up around them.