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Selling or Buying a Food Manufacturing Business For Sale
A food manufacturing business for sale is a type of company that is seen as in relatively high demand from buyers looking for businesses to buy. Part of the reason for the demand is that food has (generally) less fluctuation on the market in times of economic uncertainty and is an industry which would be challenging to outsource overseas. Also, as the population grows, there is theoretically built in demand for the products.
This articles will examine some factors to consider if you own a food manufacturing business and are thinking of selling your business or are a buyer thinking of investing in one.
How diversified is the client base?
A key consideration for the buyer is the client base. For instance, whether the business sells to restaurants and cafeterias or big-box retailers such as Costco or WalMart makes a big difference. If the business relies on distributors or food brokers versus selling directly can have an impact on overall margin.
Generally speaking, a well diversified client base is desirable, especially one which has the potential to absorb more products through the channel. Selling cookies to WalMart is attractive and even more so if the business could also potentially sell muffins too, for instance.
Quality of Equipment
The equipment in a food manufacturing operation is a key component in a buyer's decision making analysis. Take the example of a large bakery. Is it a labour-intensive operation or does it rely on machinery such as a V-Mag and other time saving devices? Also, is the equipment owned or leased?
A savvy buyer may recognize that a company with outdated equipment may be a good prospect for some capital investment in automation to improve efficiency and increase gross margins.
Food Standards & Quality
It is important that the manufacturing area presents very well and that high standards are met. Some issues to consider:
Type of Food Produced – Fresh, Frozen, Meat, etc.
The type of food being sold makes a very big difference to a buyer. For instance, fresh versus frozen desserts differ significantly. Frozen ones can be stored, shipped and an inventory held. Fresh desserts must (usually) be used same day or shortly thereafter and there exists more complications with respect to deliveries and timing.
A meat processing facility in Canada is also subject to federal inspection which is usually quite stringent and there are costs for the owner here to consider as well. Meat manufacturing facilities have very exacting standards they must meet and cleanliness, work-flow and tracking are critical. Spoilage and contamination from bacteria, as an example, needs to be guarded against proactively.
Product Development
Competition is quite intense in the Canadian food business. The industry is is very mature and some very large players dominate certain verticals (Maple Leaf Foods, Saputo, etc.). As a smaller player, it is important to always thing about developing new products within your niche in order to stay exciting and relevant to the end users. As an example, a manufacturer of a single type of dessert or appetizer may find that consumers' tastes change over time and variety or differentiation is critical to continue that appeal.
To that end, if you own a food business, a business buyer will want to know if you've developed new products and if you have the in-house resources to continue doing so or is that responsibility outsourced? A dessert manufacturer with an in-house pastry chef or similar capability may be appealing from a strategic perspective for an investor.
If you are a serious about buying a food manufacturing company, talk to a business advisor such as an attorney, accountant or even a business brokerage that has some experience in the industry. It is a unique industry where good profits can be made but it is not for everyone.
If you are an food business owner, also talk to your chartered accountant, C.B.V., lawyer or a business broker to get an idea of listing price and what the process would be to sell the business.
Steve Skrlac is a business brokerage professional serving Ontario, Canada. Steve has experience with selling food manufacturing businesses in the Toronto area that he can provide some insight on. Contact Steve to discuss selling or investing in a food manufacturer.
Click here to learn more about Steve.
This articles will examine some factors to consider if you own a food manufacturing business and are thinking of selling your business or are a buyer thinking of investing in one.
How diversified is the client base?
A key consideration for the buyer is the client base. For instance, whether the business sells to restaurants and cafeterias or big-box retailers such as Costco or WalMart makes a big difference. If the business relies on distributors or food brokers versus selling directly can have an impact on overall margin.
Generally speaking, a well diversified client base is desirable, especially one which has the potential to absorb more products through the channel. Selling cookies to WalMart is attractive and even more so if the business could also potentially sell muffins too, for instance.
Quality of Equipment
The equipment in a food manufacturing operation is a key component in a buyer's decision making analysis. Take the example of a large bakery. Is it a labour-intensive operation or does it rely on machinery such as a V-Mag and other time saving devices? Also, is the equipment owned or leased?
A savvy buyer may recognize that a company with outdated equipment may be a good prospect for some capital investment in automation to improve efficiency and increase gross margins.
Food Standards & Quality
It is important that the manufacturing area presents very well and that high standards are met. Some issues to consider:
- Does the business follow HAACP guidelines
- Are “Good Manufacturing Practices” (GMP) in place
- Does the company undertake independent food audits for safety reasons
- Can the business trace ingredients and is inventory and shipments tracked by computer
- Is the environment clean and free or dirt, peeling paint, mold, water stains and so on
- Is there an effective pest control plan in place.
Type of Food Produced – Fresh, Frozen, Meat, etc.
The type of food being sold makes a very big difference to a buyer. For instance, fresh versus frozen desserts differ significantly. Frozen ones can be stored, shipped and an inventory held. Fresh desserts must (usually) be used same day or shortly thereafter and there exists more complications with respect to deliveries and timing.
A meat processing facility in Canada is also subject to federal inspection which is usually quite stringent and there are costs for the owner here to consider as well. Meat manufacturing facilities have very exacting standards they must meet and cleanliness, work-flow and tracking are critical. Spoilage and contamination from bacteria, as an example, needs to be guarded against proactively.
Product Development
Competition is quite intense in the Canadian food business. The industry is is very mature and some very large players dominate certain verticals (Maple Leaf Foods, Saputo, etc.). As a smaller player, it is important to always thing about developing new products within your niche in order to stay exciting and relevant to the end users. As an example, a manufacturer of a single type of dessert or appetizer may find that consumers' tastes change over time and variety or differentiation is critical to continue that appeal.
To that end, if you own a food business, a business buyer will want to know if you've developed new products and if you have the in-house resources to continue doing so or is that responsibility outsourced? A dessert manufacturer with an in-house pastry chef or similar capability may be appealing from a strategic perspective for an investor.
If you are a serious about buying a food manufacturing company, talk to a business advisor such as an attorney, accountant or even a business brokerage that has some experience in the industry. It is a unique industry where good profits can be made but it is not for everyone.
If you are an food business owner, also talk to your chartered accountant, C.B.V., lawyer or a business broker to get an idea of listing price and what the process would be to sell the business.
Steve Skrlac is a business brokerage professional serving Ontario, Canada. Steve has experience with selling food manufacturing businesses in the Toronto area that he can provide some insight on. Contact Steve to discuss selling or investing in a food manufacturer.
Click here to learn more about Steve.