When I was president of a manufacturing company, I learned that an owner’s exit is rarely simply a financial transaction. It is also a test of the company’s operating discipline and sustainability. If the founder or current owner is still the primary source of customer confidence, vendor relationships, pricing judgment, problem-solving authority and shop-floor decision-making, the company may be profitable but not yet transferable.

That distinction matters for manufacturers. A plant can have strong orders, good equipment and loyal employees, yet still lose value if the transition plan depends too heavily on one person. Succession planning is about more than who signs the purchase agreements. It is also about whether the business can keep performing when ownership changes hands.

Even though I’ve since transitioned back to commercial banking from manufacturing – often still working with manufacturing companies – it is very clear to me that the timing pressure is real. The Exit Planning Institute shared in its 2025 generational owner-readiness research report that more than half of Baby Boomer business owners plan to leave their business within five years; however, only 27% have completed a formal valuation and only 9% have an estate plan. Those gaps can turn an intended exit into a rushed negotiation.

Manufacturing owners do not need to have every answer on day one. But they do need to start with the right question: Which transition path best preserves value, continuity and the future of the people who depend on the business?

Start with what should not change

Before choosing a path, manufacturing business owners should define what they want protected after they leave. For one owner, the priority may be maximizing after-tax proceeds. For another, it may be keeping the plant in the community, protecting employees or giving the next generation of managers a chance to lead.

There is no universal right answer. The right transition plan depends on the owner’s personal financial needs, timeline, leadership bench, customer concentration, debt capacity, family dynamics and tolerance for outside control. A clear set of priorities makes it easier to evaluate options without getting distracted by the highest headline number.

When a third-party sale makes sense

A third-party sale can be the best fit when an owner wants liquidity, does not have a ready internal successor or believes the company needs a buyer with additional capital, technology, sales channels or operational scale. Strategic buyers may value the company for its customer base, proprietary process, skilled labor force, location or capacity. Financial buyers may see an opportunity to professionalize systems and grow the acquired business.

The risk is that an outside sale often creates the most uncertainty for employees, customers and managers. That does not make it the wrong path, but it does put more importance on thoughtful planning and preparation.

Owners should look at the business through a buyer’s eyes: Are financial statements clean? Are customer contracts documented? Is key equipment maintained? Are safety, quality and HR practices defensible? Can the management team explain the operation without the owner in the room?

The earlier those questions are answered, the more negotiating leverage the owner usually has. A company that can demonstrate transferable relationships, reliable margins and a capable leadership team will generally be easier to sell than a company that relies on the owner’s daily intervention to keep moving.

When an internal buyout may be the better path

For many manufacturers, the most logical successor is already inside the business. A partner, family member or management team may understand the customers, the equipment, the culture and the operating realities better than any outside buyer could. That continuity can reduce disruption and give employees and customers confidence.

But an internal transition should not be treated as automatic. Leadership readiness has to be assessed honestly. Can the successor run the business, not just one function of it? Do they have credibility with supervisors, lenders, customers and vendors? Are the remaining owners aligned on valuation, timing, governance and decision-making authority? Is the departing owner willing to step back once the transition begins?

Internal buyouts can also create financial tension. The future owner may have the leadership ability but not the liquidity to buy out the departing owner. Seller financing, bank financing, earnouts and phased ownership transfers can all play a role, but the structure needs to protect cash flow. A buyout that overburdens the business can create problems for both the seller and the next generation of leadership.

When employee ownership deserves a look

Employee Stock Ownership Plans (ESOPs) can be attractive for owners who want to preserve the company’s independence and reward the workforce that helped build it. ESOPs are not simple, and they are not right for every company. They require valuation work, governance, communication, ongoing administration and enough cash flow to support the transaction and future obligations.

Still, they are a meaningful option in the manufacturing sector. The National Center for Employee Ownership identified 6,609 ESOP plans in the United States in 2023, with more than $2 trillion in assets. The U.S. Department of Labor reported that ESOPs covered more than 15 million participants in 2023.

For a manufacturer with a strong culture, stable earnings and a capable management team, an ESOP can align employees around long-term performance.

However, owners should be careful not to view employee ownership as a sentimental shortcut. The company still needs leadership, governance, accountability and a realistic plan for financing the transaction.

Financing should be part of the strategy from early on

Financing is often discussed too late in succession planning. Owners may decide what they want to happen, only to discover that the structure does not work for the buyer, the seller or the company’s cash flow. The financing conversation should start early enough to influence the transition design – ideally, after current ownership prioritizes the ideal outcomes of the transaction.

Conventional bank financing, seller notes, private equity, mezzanine debt and SBA-backed loans can all have a place in the discussion, depending on the size and goals of the transaction. For smaller manufacturers and closely held businesses, SBA lending may be worth evaluating because it can support ownership transfers that might not fit neatly into conventional credit structures.

The SBA 7(a) loan program can be used for complete or partial changes of ownership, as well as working capital, equipment and other eligible business purposes. For a partner buyout, management buyout or acquisition of a small manufacturer, that flexibility can matter. It does not replace the need for a sound valuation, equity contribution, repayment capacity and strong transition plan. It can, however, be one tool in the capital stack.

Manufacturers, in particular, should also pay attention to newer SBA initiatives. In March 2026, SBA announced a Made in America loan guarantee tied to the International Trade Loan Program, with a 90% federal guarantee for eligible small manufacturers. SBA also announced that, for fiscal 2026, the upfront fee for 7(a) manufacturing loans up to $950,000 would be 0%.

In addition, in May 2026, the SBA raised combined 7(a) and 504 loan limits to $10 million and announced a $50 million grant program for small manufacturers’ training and consulting.

These programs will not fit every transaction, but they do show why financing strategy should be reviewed alongside succession strategy, especially for owners considering expansion, reshoring, acquisition or ownership transfer.

Do the operating work before the transaction

The best succession plans usually start well before an owner is ready to leave. Manufacturing leaders can make practical progress by focusing on five areas.

First, build a leadership bench. Identify who can run sales, operations, finance, quality and customer relationships without the owner as the default decision-maker.

Second, document the business. Buyers and lenders want to see reliable financials, customer contracts, vendor terms, equipment records, backlog, safety practices and key performance indicators.

Third, reduce concentration risk. A company that depends heavily on one customer, one supplier, one estimator or one supervisor may be more vulnerable in transition.

Fourth, get a realistic valuation. An owner’s retirement number and the market’s view of value are not always the same. A valuation gives the owner time to close the gap.

Fifth, talk to advisers before a deal is on the table. The CPA, attorney, banker, wealth adviser and transaction adviser should not meet for the first time in the middle of a negotiation.

A good exit protects the next chapter

For manufacturing owners, succession is personal. The business may carry the owner’s name, support generations of employees and anchor a local supply chain. That makes the decision emotional, but it should not make it informal.

A successful exit is not simply the day an owner leaves. It is the point at which the business proves it can keep serving customers, employing people and creating value under new leadership. Owners who plan with that standard in mind give themselves more options. They also give their companies a better chance to keep making things long after they have stepped away.

Patrick Fenech is senior vice president and managing director of SBA Lending at American Momentum Bank. He works with business owners on SBA financing strategies, including acquisitions, ownership transitions and growth capital. He also brings firsthand manufacturing leadership experience, having previously served as president of a manufacturing company. He can be reached at  (813) 549-4763 and pfenech@americanmomentum.bank.