Buying a manufacturing business in Florida

These are small manufacturers that don't fit a single category: makers of fishing tackle and sporting goods, jewelry, candles, brushes, musical instruments, displays, promotional products, pet products and many other goods. Many were built by their founders around one or two product lines and loyal customers.

They sell in different ways, and each has its own costs and risks:

• Wholesale to retailers and distributors brings volume, along with retailer terms, deductions and chargebacks (penalties retailers take out of their payments).
• Direct to consumers online brings higher margins, but also advertising costs and dependence on online marketplaces.
• Private-label production, making goods for other companies to sell under their own brands, depends on a few customers.
• Custom work to order depends on the skill and reputation of the people doing it.

You'd be buying product designs, brands and trademarks, equipment and tooling, inventory, supplier relationships and customer accounts. A small manufacturer often has a production lead, a handful of skilled workers, someone who handles orders and shipping, and an owner who designs products and manages the key accounts.

• Products the company owns, with registered trademarks and documented designs that competitors can't easily copy.
• Several sales channels, so one retailer or marketplace can't sink the business by changing its terms.
• Steady reorders from long-standing accounts, and a few products that sell year after year without redesign.
• A known cost for each product, with prices that cover it after shipping and returns.
• Equipment and tooling that the company owns and maintains, including molds and dies kept at suppliers.
• Backup suppliers for key materials and parts.
• Production that runs without the owner on the floor.
• A customer email list and reviews that keep selling without constant advertising.

Most small manufacturers need no state license, just a local business tax receipt and the right zoning. The rules come from what they make:

• Consumer products fall under the Consumer Product Safety Commission (CPSC). Children's products need third-party testing and a Children's Product Certificate. Products covered by a CPSC rule, ban or standard need a General Certificate of Conformity (16 CFR part 1110).
• Selling nationally brings other states' rules, such as California's warning-label law.
• Products for food contact, cosmetics or medical use bring FDA rules, and Florida requires cosmetic and medical device makers to hold DBPR permits. A change in majority ownership needs a new permit application before closing (section 499.012, Florida Statutes).
• Paints, finishes and solvents can bring hazardous waste rules and, for larger operations, air permits from the Department of Environmental Protection. To transfer a permit, an application is due within 30 days after the sale (rule 62-4.120).

Ask which rules apply to each product line.

• Sales by product, channel and customer for three years. Trends matter: a product line that peaked two years ago may still be carrying today's numbers.
• Gross margin by product: what's left after materials, labor, shipping and returns.
• Trademarks, patents, domain names and marketplace accounts registered to the company. Marketplace accounts can be hard to transfer, so check each platform's rules.
• Product liability insurance and any claims, recalls or safety complaints.
• The equipment list and its condition, and tooling kept at suppliers, with proof the company owns it.
• Retailer agreements: chargebacks, return rights and payment terms.
• An inventory count, with slow-moving stock valued realistically.
• Test reports and certificates for products that need them.

• Which products make most of the profit?
• Who are your largest customers, and how long have they been buying from you?
• Does the company own the trademarks and designs?
• What's your backup if a key supplier can't deliver?
• Have you had any recalls, injuries or complaints about your products?
• How much do you spend on advertising for online sales?
• Who could run production if you stepped away?