After several years running a profitable industrial company out of a leased starter facility, you may face the decision of staying the course or investing more deeply in your business by purchasing a plant of your own. Can you obtain loans or other forms of capital? Can you afford to buy a property of your own without condemning yourself to a cash-poor business model and rendering yourself unable to meet your key obligations or pursue fresh opportunities? If the answers to these questions feel fairly safe and secure, locking in your own industrial plant may ultimately prove to be a positive turning point for your business in the long run.
What Is the Plan?
Don’t settle for measuring twice. Measure thrice. An honest understanding of your company’s present state and ambitions for the future is not optional. Every question defining the identity of your business should come under consideration. If you run a manufacturing operation dependent on heavy equipment you cannot relocate easily, purchasing may keep you out from under a landlord’s thumb when your lease comes due. On the other hand, light manufacturing or distributing that utilizes more easily moved hardware may leave a permanent, owned facility as more of a luxury than a necessity. Beyond your current needs, how does your forecast bode for eventual expansion? How do your activities jibe with zoning codes? Leaving nothing unexamined before committing capital you consequently will not have available to fund expansion.
Equipment, Machinery, Stock and Certifications
Whether or not you pay a “fair” price for an industrial plant will likely depend on much more than the facility and property itself. Any offer you make should take into consideration the collective value of all included equipment and stock conveyed with the plant itself. Thoroughly investigate the age and condition of all machinery, the quality and quantity of every piece of stock and the status of any associated patents, business websites and other intellectual property through a third party without simply taking the seller’s word for their value. If your particular business requires specific certifications and permits, double-check the state of the plant and any required renovations or retrofits to ensure the facility will line up with your jurisdiction’s regulations.
Due Diligence, Disputes and Resolution
Leave nothing to chance or assumption. By the time all parties are ready to sign on the dotted line to close the sale, you should know in no uncertain terms exactly what you are paying for after meticulously looking into the vending company’s every detail. The seller will look to recoup as much value as possible on the sale, quadruple-checking the numbers and guaranteeing every claim adds up by analyzing all available documents is paramount. Consider how the previous owner stacked up with local competitors. Did the company go under after losing just a few big clients? That could be a red flag on their reputation and potential motivations no prospective buyer should entirely ignore.
Did several of the seller’s clients just happen to place unusually large orders exactly during your due-diligence period? The seller may have called in favors to briefly boost takings. Are the seller’s contracts murky in terms of stock value or indicative? How specific is the contract regarding intellectual property? If something seems amiss, have a business attorney draft your own set of documents and review the contract and all other documents several times over before finalizing the sale. Your attorney should also be able to guide you through a reasonable, amicable process to resolve any disputes that could arise.
Purchase Vs Rehabilitation/Construction
Assuming you already own a facility, purchasing an industrial plant may not be the only avenue available for expanding or revamping your business. Rehabilitating an existing property or even building a new one from scratch might better suit your circumstances, but always plan for the worst and hope for the best. Whatever costs and timetable you initially estimate for such a project, proceed as though you expect it to cost at least 15 percent more and take 15 to 20 percent longer to complete. Even with reliable and reputable contractors and architects on board, new construction or renovation will eventually aggravate some aspect of day-to-day operations. The trade-off leaves you with an industrial plant tailored to your exact preferences and needs at a potentially lower cost than pulling up stakes and fully relocating. In the end, it all comes down to which route falls into the intersection of immediate affordability and long-term benefit.
Purchasing an industrial plant is a massive real estate undertaking like few others. It’s one thing to look at a house and think, “I could raise a family here.” It is another entirely to stare at a massive production facility and wonder, “Would someone purchase industrial stirrers here?” Investing in a home somehow pales in comparison to examining capital assets, a previous company’s books, state industry regulations, zoning and your own business needs before sinking a life-changing amount of money into the livelihood you and your employees share. There is almost no such thing as “excessive caution.”
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