This article are provided for information purposes only, and are not intended as legal advice.


Controlling costs to increase profits before selling your business

May 18th, 2010

The goal of many business owners is to maximize profits which can be done by increasing prices or decreasing costs.  Many companies have tried to do both but concentrate on minimizing prices.  First they reduce staff levels or they may automate and change the manufacturing process to achieve efficiencies.  Others have outsourced manufacturing to foreign countries.

 

On April 29, I wrote a blog about manufacturing in China – is there an advantage or it is becoming too expensive and in  a few years, manufacturing will be returning back to North America.  I read in a local newspaper yesterday that a Canadian company was moving their manufacturing plant back to Canada because China was becoming too expensive.  My predictions were correct but the timing was much faster than I originally thought.

 

The stock markets and the financial markets believe that outsourcing to a foreign country is far cheaper than producing in North America.  It is for some products but those which are very automated processes, there is not a lot of labor costs in the cost of the goods sold.  Businesses go to China and the Far East to save on labor costs.  As processes are becoming more automated, the savings that businesses incur keep getting smaller. The costs of transportation, the cost of having to have your inventory in a container on the water for four weeks means that your working capital is tied up, you cannot go just in time delivery easily because you have to fill up an entire container.

 

Small businesses did not have the volume to warrant going to China, they did not have enough goods to fill a container.  As a result, China and the Far East was not an issue.  There is still a lot of small manufacturing companies around.  Why do they exist but all large manufacturing is done in foreign countries?  There is always a need for quick turn around, there is a need for custom products, there is a need for a choice in the color of your products, not just one or two which is what you may get out of the Far East.

 

In summary, looking to automate your manufacturing plant may achieve the efficiencies you need to justify a higher selling price when you sell your business.  If you are going to invest heavily in capital equipments, may sure that you do this at least three or more years prior to selling your business in order to your to see the benefits of your investment in the selling price of your business.


Filed under: Selling a business — Gary Landa @ 8:48 am


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