Preparing your manufacturing business for the future

RSM Australia Partner, Mark Nichols, explores why business owners must ensure their operations, finances and compliance frameworks are investment ready.

Australia [and the world] is seeing continued appetite for investment into the manufacturing sector. 

As a manufacturing business owner, you might be thinking about your exit options [family succession, management buy-out, or trade sale], taking your business to the next level [private equity investment or IPO] or even just seeking funding for continued growth.  Whatever your goals are, ensuring your business, accounting, tax and compliance strategy and framework are in place is attractive to funders and investors and critical to getting the outcome you need. Too many manufacturers wait until they are ready to seek investment, read to sell or receive an approach, to start setting up their business for that opportunity.

This editorial has been framed through that lens of what investors, such as private equity, family office, or private buyers, often need to see to progress a deal. However, it equally applies to businesses seeking finance to fund growth or other opportunities. 
 

Business – optimising value

Ensuring that management is working to implement best practice systems and processes to optimise operations, maximise profitability, and make the business more attractive, is crucial.

This can include things like: 

• Initiatives to drive profitability including traditional manufacturing principles and strategies such as implementation of lean manufacturing principles and improving inventory management.
• Rightsizing your employee base to ensure you have a productive team and aren’t leaking profit on over capacity of people.
• Ensuring that you have reliable short-, medium- and long-term financial forecasts in place.
• Ensuring you have long-term contracts in place with key customers – most buyers or investors will want to get comfort that the current revenue streams will not walk away after they invest.
• Ensuring that property leases, distribution chains and other critical infrastructure is locked in.

Profit driven initiatives

Remember, most businesses are valued on a multiple of EBITDA [Earnings Before Interest, Tax, Depreciation and Amortisation]. At its core, EBITDA is a measure of business profitability and cash generation to the extent that you can work on the financial side of the business, drive bottom line improvements, and convert of accounting profit to free cash flow, to increase the value of your business by a multiple of those initiatives.

Potential buyers will be focussed on sustainability of EBITDA, and their ‘repayment period’ for an acquisition. Accordingly, the more locked in your customer base and future sales pipeline is, the more appetite a buyer will have to pay for your business. 
 

Management reporting

Is your finance team generating reliable, accurate and real-time financial reporting that you can use to make critical business decisions to ensure that your business is as profitable, and in turn valuable, as it should be?

Investors, lenders and buyers all go to the numbers first, and what you want to achieve will be driven by what those numbers say. Think about the tools that will help you to drive the right outcomes. 

• Dashboard Reporting: Accessing real-time financial, and non-financial reporting, often from disparate sources or software platforms, creates an environment where management can make better decisions and drive better outcomes faster.
• KPI’s: Understanding your business and distilling those key items that drive success and value down to a small number of targeted KPIs is a good strategy to ensure focus on value creation.
• Data analytics: Where you need to dig deeper into the business and the problems that you are looking to solve, engaging data analytics specialists can be of value to many manufacturers.

Outsourcing

Many manufacturers are leveraging fractional outsourced solutions from their advisors to improve reporting and finance functions. For example, a business may have an internal ‘bookkeeper’ but may not wish or need to invest in an expensive full time CFO [chief financial officer] on top of that. Engaging your advisors on a fractional basis, with a strategic objective, is becoming a common strategy. As an example, perhaps you engage your advisors for one day per month to deliver:

• A ‘month-end close’ reviewing accounting to confirm that your accounts are accurate.
• A sophisticated Management Reporting solution to support your decision making.
• Some commentary on their observations of areas of focus for you, which can drive better business outcomes.

Compliance

In 2025 we are seeing a far bigger focus from investors on risk, and in turn more questions are being asked regarding the compliance framework of the target business. 

These can include: 

• Audit: Are you meeting your statutory obligations? Or if you are seeking investors, will they want audited accounts to support their investment decision?
• ESG: Have you engaged advisors to ensure that you can meet new and incoming ESG frameworks and that the business someone is investing in will not only be risk free but will have a social and regulatory licence to operate? ESG compliance can be critical for manufacturers.
• Tax risk/exposures: Are investors confident in the quality of your advisors and that they aren’t exposing themselves to unseen tax risk on investment?
• Cyber security: In recent years, cyber security has emerged as a huge concern for businesses who have sensitive IP or data. Smart manufacturers are engaging experts to ensure that the IP that creates their company value is free from theft and that their business and customer data is secure from external attacks.

Are you managing your compliance framework in such a fashion that you are minimising the potential risks that would make an investor, buyer or lender turn away? And when the opportunity arises are you ready for due diligence, and can you answer any compliance questions that an investor may present?

Reputable advisors

When looking at businesses, external investors are increasingly looking at who the advisors to the business are [accounting and legal]. This is to gauge the degree of reliability of the data they are assessing about the company, and the degree of compliance risk that might exist in the business. Aligning yourself with the right advisors in advance of an opportunity is smart management.

Go to market

If an opportunity does present itself, or you decide to go to market for a business sale, engaging corporate finance support through that process is valuable.

An engagement can range from light touch to full transaction management, however invariably the outcomes are beneficial. That assistance can include valuation of your business, review of agreements to ensure that the deal presented is free of unfavourable conditions for you, as well as the development of your succession, sale or exit strategy and structure etc.

Summary

Many business owners don’t know what opportunities might be on the horizon for them. Opportunities for external investment or a business sale can arrive with little notice. For privately held manufacturing businesses, we are also increasingly seeing owners who need a transition to a retirement plan.

Ensuring that your manufacturing business is running at its full potential, that your compliance risks are covered, and that you have strong reputable advisors to support all those key initiatives, can be critical. 
 

 FOR MORE INFORMATION

If you would like to learn more about the topics discussed in this article, please contact your local RSM office.

This article was first published in Australian Manufacturing.