Why Buyers Love Distribution and Light Manufacturing Companies

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If you ask me what my favorite companies are to sell, I would have to say distribution and light manufacturing.  The reasons are quite simple.  A distribution company is typically not complicated.  You order merchandise from the manufacturer.  You receive the merchandise. You repackage the merchandise and ship it out to the end user.

Or better yet, you order from the manufacturer and have the manufacturer drop ship the merchandise directly to the customer.  The goods never enter your premises.  Now what could be easier than that?  All you have to do is invoice the customer and wait for your money.

Now with light manufacturing, the story is a little different.  You must first understand the difference between light manufacturing and heavy manufacturing.  Heavy manufacturing companies are very capital intensive with very large pieces of machinery and equipment. They can be antiquated like 40 year old printing presses or leading edge like laser cutting devices, but in either event, there is a great deal of repair and maintenance involved.

Some of the maintenance is routine.  Some of the maintenance is preventative.  Preventative maintenance is where a schedule is established to inspect equipment and machinery “before” it breaks down or fails to operate.  A company can have its own internal personnel perform the maintenance, or they can outsource the service.

My preference is to outsource the service so that another company can be held responsible if there is a preventable problem that arises. Another reason for outsourcing is that you eliminate the possibility of a disgruntled employee sabotaging the equipment or machinery.

Now let us discuss employees.  With a distribution company, you typically need fewer employees to handle operations because most of their time is spent receiving, shipping and billing.  There will be times when physical inventories must be taken, but even if they are performed as infrequently as annually or as routinely as monthly, either internal personnel can handle the task or part-time staff can be used to supplement their efforts.

With manufacturing companies, you are dealing with different issues altogether.  Typically, you need more employees in a light manufacturing environment to generate the same level of sales as a distribution company.  This means more hiring, more supervision, more potential personnel conflicts, more possible injuries, more downtime, etc.  But the upside is that light manufacturing is normally much more manageable than heavy manufacturing when things go wrong.

You may ask what I mean when I say “when things go wrong.”  If equipment or machinery fails to operate, it normally can be replaced or repaired in a short period of time with little impact on production.  If employees are ill or you sustain unexpected turnover, the learning curve for full or part-time replacements is much quicker.  If you run out of inventory, you might be able to obtain a shipment the same day or even pick it up yourself.

I think you will agree that distribution and light manufacturing businesses are highly desirable to all parties.  Buyers like them due to their lack of complexity and short learning curve.  Sellers like them due to their ease of ownership and ease in selling.  Buyers and Sellers both like them because they are able to take raw materials and labor and create finished products.  There is a great deal of satisfaction in creating “stuff” that is tangible.  And brokers like them because they are in high demand under normal circumstances.
  • Author: Loren Schmerler
  • Title: Business Broker - Owner
  • Company: Bottom Line Management, Inc.
  • Company Website: http://www.botline.com/
  • Date: September 08, 2016
  • Category: Buying a Franchise or Business
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