By: Steve Hanson, Certified Business Broker (CBB), intermediary (CBI), MBA and Co-Owner of Transworld Business Advisors San Diego North

If you’re a small to middle-market manufacturing business owner in San Diego considering selling, you have picked an excellent time! Currently, the area's manufacturing sector is thriving, making it the perfect time to achieve great value. 

Of course, there is a lot that needs to happen to sell a manufacturing business successfully, which is why it’s vital to stay informed and understand the process. There is the matter of calculating and growing the value of the business, preparing operations and financials, and putting together a well-structured exit strategy. 

We’ll cover all of this below, as well as the importance of professional guidance to maximize the value of your business. Oftentimes, we see businesses price their business way too low and leave a mountain of cash on the table. So, if you’ve been thinking, “Should I sell my manufacturing business?” and are looking for guidance, this is the article for you.

Why Now Is the Ideal Time to Sell a Manufacturing Company in San Diego

As we already stated, now is the ideal time for selling your manufacturing business. San Diego manufacturing businesses in aerospace, electronics, biotech, and more are experiencing significant growth. In fact, according to a recent report from San Diego Regional EDC, the city’s $47B manufacturing sector supports 121K jobs, which highlights it as a thriving industry. This makes it a hot spot for buyers seeking business opportunities with big potential. 

At the same time, new and developing economic and political trends are encouraging manufacturing to come back into the United States, which will boost the industry even more. This has led to a significant increase in the interest and demand from buyers in private equity firms, strategic buyers, and individual investors. This is highlighted by the 2024 Market Spotlight on San Diego by JLL, which highlights key statistics, such as: 

• San Diego is the 3rd largest life science hub in the country.
• The city was the second-largest recipient of DoD funding in 2023, with a total of $36.1 billion.
• Tech jobs in the city are projected to increase by 10% over the next 5 years. 

These are only a few of the significant factors that are showing the growth and potential in San Diego. Overall, this growth in various niches and the manufacturing sector is bringing motivated buyers to the area.

High Demand for San Diego Manufacturing Businesses

Another factor that contributes to it being an excellent time to sell is the high demand in the San Diego area specifically. There are a few reasons for this being the case, with one of them being San Diego’s massive manufacturing ecosystem. This contributes to significant innovations in a variety of fields. Plus, the city’s close proximity to international ports and distribution networks makes it ideal for importing and exporting or just shipping products in general. 

We briefly mentioned reshoring initiatives above, which is another massive influence in the current manufacturing market. Current political and economic climates are moving toward significantly encouraging domestic manufacturing, which is heavily influencing buyers and increasing local opportunities.

Economic Incentives and Market Advantages for San Diego Sellers

Additional market advantages and incentives within California and San Diego itself make it an excellent area for buyers to invest. The California Competes Tax Credit is awarded to businesses of all sizes in the state to grow and create more jobs. There is also the Manufacturing and Research & Development Equipment Exemption that reduces a portion of the sales and use tax on certain purchases made by these types of companies. 

Incentives like these make the state and area much more appealing for buyers looking at manufacturing businesses. A good example of the high buyer interest in the area is a recent sale of a precision manufacturing business in Carlsbad facilitated by Transworld Business Advisors of San Diego North. Ultimately, the business attracted multiple offers from interested buyers and then sold for above the asking price.

Who Are the Typical Buyers for Manufacturing Companies?

When considering selling your manufacturing business, you may wonder who the buyers are. Typically, there are three types of buyers that will be interested in manufacturing businesses: 

• Strategic Buyers: These are typically larger manufacturing firms looking to expand their capacity or product lines, or may want to secure proprietary functions. They may be willing to pay higher premiums for operations that will be synergistic with their own.

• Private Equity Firms: Private equity firms are generally looking for profitable or high-potential manufacturing operations. They want companies with scalable operations and teams.

• Individual Investors: These are individual entrepreneurs or professionals who want to become business owners. They may own businesses already or this could be their first. The main concerns of individual investors will be capitalizing on the innovation-driven economy of San Diego.

How to Calculate the Value of Your Manufacturing Business

A big question for those considering selling their business is how to properly calculate its value. After all, this is a critical factor in ensuring that owners set the right asking price that attracts serious buyers. There are a few key factors that go into calculating the value of a manufacturing business in San Diego, including:

• Revenue and Profitability Trends: The revenue and profitability trends of a business play a massive role in its value. This includes sustained growth and consistent margins to signify a healthy business.

• Customer Diversification: A diverse customer base helps to reduce risk by spreading revenue across multiple sources.

• Equipment and Asset Valuation: Well-maintained and up-to-date equipment makes for more efficient operations and is valued higher.

• Workforce Stability and Expertise: More skilled labor and lower turnover rates show less risk and are more attractive to buyers.

• Proprietary Processes or Technology: Proprietary tech and processes offer a competitive edge over other manufacturing businesses. Moreover, this adds additional risk protection and future-proofing. 

• Location Impact: The factors mentioned above about San Diego, such as proximity to shipping routes and tech hubs add value to the location of the business. 

Common Valuation Metrics for Manufacturing Businesses

Valuing a business is typically done using EBITDA multiples, which stands for ‘Earning Before Interest, Taxes, Depreciation, and Amortization’. The multiple uses can vary depending on the size of the business, industry niche, growth potential, and more.

---

 Curious to know the market value of your business? Use our online free business valuation calculator to get an estimate.

---

 How Long Does It Take to Sell a Manufacturing Business?

So, your next question may be, how long does it take to sell a business? The short answer is typically around 6-12 months. However, certain factors can certainly speed up or delay the process, including:

• Strong Financials and Documentation: Strong financial performance and documentation can significantly speed up the process of a sale. Not only does it attract more serious buyers, but it shows less risk for those buyers. It also helps to show that taking over the business will be a smoother transition.

• Professional Marketing: By using a business broker’s network for marketing, the sale will be able to reach more serious buyers. Otherwise, it could take some time for buyers to see it or the right one to come along.

• Working with Professional Brokers: Professional business brokers can help remedy any issues that arise during the sale and make recommendations for improvements that will significantly help make the business more attractive to buyers. Plus, brokers handle the negotiations to push the sale along and get the maximum value.

Tax Implications and Capital Gains in California

Of course, just like selling any other significant asset, there will be tax implications to consider in a business sale.

The first of these tax implications is capital gains, which is a tax on the profits from the business increasing in value since it was bought or started. Capital gains laws can vary from state to state, but in California, it is treated as regular income. This means it will be subject to the state’s income tax rates of up to 13.3%, depending on the selling price and current income. On the federal side, there is a distinction between short-term and long-term capital gains:

• Short-term: When the business has been owned less than a year before it is sold.
• Long-term: When the business is owned for a year or more before being sold.

These rates can vary depending on income and how long the business was owned. There are certainly ways to lower the tax liability, such as:

• Installment Sales: The owner is paid for the business over time. This helps to lower the amount of capital gains taxes they have to pay in the year and could lower it overall by reducing their yearly income.

• Reinvestment in Qualified Opportunity Zones: Reinvesting capital gains into designated zones called Qualified Opportunity Zones. These are areas federally designated to encourage long-term investment and development in underserved community areas. Capital gains can be deferred, reduced, or tax-free depending on how long the investment is held.

Maximize Your Sale with a Business Broker

Partnering with a business broker in San Diego can make the entire process more streamlined and more profitable for the owner. When working with a local San Diego business broker, owners gain access to the expertise of CPAs, financial advisors, attorneys, and industry experts. Plus, you will have personalized guidance to maximize value throughout the sale, from valuation to closing.

As one of the original franchise locations, Transworld San Diego North is highly experienced in helping any sized business ensure they get the best value for their business. We have worked with thousands of owners to help them through the entire process, so they can focus on running the business while we do the heavy lifting. Even better, our nationwide network of buyers and a sophisticated buyer match program make it easy to find the right buyer.

So, if you’ve been thinking “I’m ready to sell my manufacturing company”, then Transworld of San Diego North is here to help you confidentially form the perfect exit strategy and sell your business. Reach out to us today for a free consultation on where to begin.

Suggested next reading:

• How Much Should You Pay for a Business Valuation?
• How to Sell a Business with a Commercial Lease
   

---

Transworld Business Advisors of San Diego is part of the global Transworld Business Advisors network, the world’s leading business brokerage firm. Learn more about our worldwide reach and expertise at Transworld Business Advisors.