B2B, Industrial & Distribution · Buyer guide
Buying a Manufacturing business
Published · Reviewed by The Diligence Standard Team · Updated
Manufacturing businesses often carry hidden value and hidden liabilities inside inventory, machines, labor skill and customer/product mix. Summary EBITDA is rarely enough.
How the business works
Customer/product margins, machine utilization, labor skill, inventory, supplier concentration and deferred CapEx determine earnings quality.
Risks to test
- Customer concentration
- Obsolete inventory
- Deferred machine CapEx
- Supplier dependence
- Skilled-labor concentration
- Environmental/safety issues
Evidence to request and reconcile
- Customer/product profitability
- Inventory aging
- Machine/fixed-asset schedule
- Maintenance history
- Supplier spend
- Scrap/rework and quality data
Decision questions
- Which customers/products actually create gross profit?
- How much inventory is slow or obsolete?
- What machinery must be replaced or rebuilt?
- Where is tribal knowledge concentrated?
- How much capacity exists without additional CapEx?