5 Must-Have Systems to Scale & Sell Big
💣 You'll learn: The five essential systems buyers look for and how missing them costs sellers millions
⏱️ Read time: 5 minutes
🔍 Real deal analyzed: Manufacturing company with $2M EBITDA, 65% customer concentration, and complete owner dependence
THE REAL DEAL
"Systems make the difference between selling your manufacturing business at premium multiples versus fire-sale prices. Here's what I discovered while reviewing a recent deal..."
Last week, I analyzed a precision manufacturing company that should have been a buyer's dream: $2M in EBITDA, specialized equipment, and 15 years of steady growth. The owner expected offers around $10M (5x EBITDA). Instead, the highest offer came in at $7M. What happened?
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DEAL DETECTIVE
The Private Equity Perspective
Private equity would identify 5 critical systems the business lacked:
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Leadership Transition System : The owner personally managed key accounts, engineering decisions, and vendor relationships. Without documented processes for transferring these responsibilities, buyers feared losing customers post-acquisition.
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Customer Diversification System : Without a structured approach to balancing their customer portfolio, the company had become dangerously concentrated. Buyers saw this as a serious risk factor.
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Production Management System : While workers knew their jobs, there was no standardized documentation of manufacturing processes, quality control, or continuous improvement protocols.
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Financial Controls & Reporting : The company used basic accounting software but lacked systematic financial reviews, forecasting processes, and margin analysis by product line and customer.
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Strategic Growth Framework : The company had no formal process for evaluating new markets, customers, or product lines, making future growth prospects uncertain.
VALUE VAULT
Solutions for Maximizing Manufacturing Business Value
For Sellers : Implementing these five systems typically adds 0.75-1.5x to your EBITDA multiple for manufacturing businesses. Start with addressing customer concentration by creating a focused customer acquisition strategy for underrepresented sectors. Document your customer management processes so others can maintain these relationships.
For Buyers : When evaluating manufacturing targets, look beyond equipment and current financials. The maturity of these five systems indicates how smoothly the business will transition and how quickly you can reduce risk factors post-acquisition. Well-documented systems justify paying premium multiples despite current concentration issues.
In this case, I estimated that implementing these systems would have justified the owner's original asking price of $10M instead of the $7M offer…a mind-blowing $3M difference attributable to missing systems.
Stay rebellious,
kinza
p.s. I’ll help you tackle leadership transition, here’s a free resource.
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