Most business buyers will want to grow the business they acquire. If a business doesn’t have a reasonable amount of excess available capacity in its facility and equipment, growth opportunities for a buyer may be limited absent significant additional capital expenditures.
If your business is at or near capacity, it will be less marketable than one that still has room to grow. This isn’t to suggest that a business should necessarily move to a new larger location or that a seller should go out and acquire new equipment if they want to sell in the near term. What it does mean, is that a buyer will tend to look less favorably on a business with limited expansion potential absent new capital expenditures, or will tend to offer a lower price for the business to compensate for the additional capital outlay required. A practical way to mitigate expansion issues is to work on improving business operations. For example, a manufacturing company owner who employs a lean consultant may find that by improving operations, the business can reduce the amount of space devoted to inventory by 50%, and that it can increase output by an additional 30% by re-configuring the facility layout and moving away from batch manufacturing. Improving operational efficiency when capacity appears limited can free up excess capacity creating growth potential for buyers.
Comments