Are you considering selling your furniture manufacturing company? If you are, then this guide is for you. This review from an experienced business broker takes a close look at the valuation and sales process for furniture manufacturing company owners.
About The Furniture Manufacturing Industry
This industry is involved in the production of assembled and unassembled furniture. It includes furniture for all building types, including but not limited to residential properties, churches, schools, theaters, and libraries (Business Reference Guide). The threat of foreign competitors and import furniture remains large for domestic manufacturers. However, there was a sizable increase for the industry in 2022 (1.6%). Nevertheless, the industry outlook is not as optimistic. Here are the most recent industry trends and projections:
- There are approximately 4,041 furniture manufacturing companies in the U.S.
- There was a -1.6% annual growth for the furniture manufacturing industry from 2018 to 2023
- The furniture manufacturing industry generates $25.7 billion in annual revenue
- The annual profit for the furniture manufacturing industry is $746.2 million
- Experts predict a sizable decline in annual growth (-1.9%) from 2023 to 2028
A Market Approach Valuation to Determine Your Company’s Worth
A market approach is recommended for furniture manufacturing company owners who are planning their exit. This takes a close look at sales data in your industry and determines your company’s value accordingly. Specifically, your broker will calculate your financial numbers, such as your earnings before interest, taxes, depreciation, and amortization (EBITDA), discretionary earnings (SDE), net sales, and gross profit. This number is then applied to the rule of thumb data below.
- Furniture manufacturing companies sold between 2.17 and 2.61 times the Seller’s Discretionary Earnings (SDE)
- Furniture manufacturing companies sold between 3.34 and 5.64 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Furniture manufacturing companies sold between 0.35 and 0.69 times the annual net sales
Of course, adjustments are also made according to other considerations, such as your manufacturing company’s location, growth potential, and your reason for selling. A professional market-based valuation allows you to justify your asking price during the marketing and due diligence stages.
A Step-by-Step Guide to Selling Your Furniture Manufacturing Company
Although there is no universal approach to selling a furniture manufacturing company, there are steps you should include in your sales plan and strategy. Here is our general recommendation for selling your company for fair market value or higher:
- Determine your fair market value (FMV)
- Determine when you should sell your company
- Prepare your company’s documents
- Privately market your company
- Negotiate, plan contingencies, and secure a buyer
- Allow the buyer an opportunity for due diligence
- Attend closing, confirm payment, and transfer company ownership
Determine Your Fair Market Value (FMV)
A market-based valuation from a professional broker reveals the amount reasonable buyers are willing to pay for your company. Without a professional valuation, you may receive offers below fair market value, and you may not be able to justify a counter offer. Consequently, many who sell without a valuation accept an offer for well below their company’s worth.
Determine When You Should Sell Your Company
It is also imperative to time the sale perfectly. Ideally, you want to sell while the market is trending up and the demand exceeds the supply. This can help create competition for your company, raising its value. Your broker can help you plan your sales approach and timeline during this second stage.
Prepare Your Company’s Documents
It is better to prepare your documents before the sale, rather than scrambling to do so in the middle of the sales process. Specifically, you should prepare these documents:
- Federal tax returns (3+ years)
- Profit and loss (P&L) statements (3+ years)
- Balance sheets and cash flow statements
- A copy of your insurance policy
- Your lease information and/or real estate appraisal(s)
- A list of your inventory and its value
- A list of your employees
Of course, the documents you need are unique based on your company’s specific information. Your broker (along with your attorney and CPA, if applicable) can help you arrange the documents you need.
Privately Market Your Company
You want to sell your company in a discreet manner. This helps avoid business disruptions that could impact your value. Your broker should utilize confidential marketing methods, such as the use of a confidential memorandum and non-disclosure agreements (NDAs).
Negotiate, Plan Contiengies, and Secure a Buyer
This is the stage where working with a business broker really helps. Along with your input and involvement, your broker can negotiate, plan contingencies, and secure a buyer with a signed letter of intent (LOI).
Allow The Buyer an Opportunity for Due Diligence
Due diligence allows the buyer to verify important information about your furniture manufacturing company. However, this should not be entirely open-ended. You should implement a due diligence map, which outlines the stages of due diligence and provides a deadline for all tasks within each stage. This helps ensure you move to close the sale as soon as possible.
Attend Closing, Confirm Payment, and Transfer Company Ownership
Closing involves the confirmation of the payment and the transfer of ownership. However, the transition period of the company usually takes longer than a day. In fact, in many cases, prospective buyers may request that you remain involved for several months or more to help ensure a smooth transition.
Are You Ready for Life’s Next Journey?
If you are an owner of a furniture manufacturing company and are ready to follow through with your exit strategy, then contact the experts at Sigma Mergers and Acquisitions. With over a decade of experience and 600+ businesses sold, we can help you sell in a stress-free manner and for fair market value.
