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Buying a soft furnishings manufacturer

Interview with...

Paul Terlizzi

Business name:
American Down & Feather
Manufacturer serving upholstery, home decorating and hospitality industries
When bought:
A year ago
beds comfort white bed pillows How did you get into the manufacturing sector?

Paul Terlizzi: I am familiar with product manufacturing, having grown up in a family business that has manufactured footwear and apparel for four generations and which still has two small factories in the US today.

BFS: Why this niche in particular?

PT: This business serves the home decorating market and produces custom-made products to order. I liked the custom-made products aspect of the business; its products are not easy to duplicate.

BFS: How did you raise the finance?

PT: At first I sought SBA financing, but the restrictions were too burdensome and only one of 28 lenders would even consider the deal, so I financed using a combination of home equity and a 401K rollover product (Guidant Financial).

BFS: To what extent is it a good time to buy a manufacturing firm?

PT: Apparently it is a pretty good time to get into manufacturing again in the US. We also import some supplies and finished products from China, and honestly, right now our cost to manufacture most things is less than the cost to import them.

BFS: How confident are you about the future of manufacturing in the US?

PT: I think manufacturing - in the US or anywhere - can be a good business, so long as the product is unique (i.e. not a commodity) and the turnaround time is quick (saving the customer inventory costs) and the customer is close by (saving the customer transportation costs). 

I have trained myself to know when to walk away if the sellers or their advisors begin to increase or change their expectations

BFS: What should a prospective buyer look for in a manufacturing business for sale?

PT: A generous gross margin, low inventory, low overhead expenses - rent, supervison, etc - and a diverse and loyal customer base.

BFS: Have you ever bought a business before?

PT: When I ran my family's business I purchased six small businesses and formed three joint ventures over a 10-year period. One was a chain of specialty retail stores, two were small manufacturing businesses, three were distribution businesses, and one was an educational company.

BFS: In what ways does your experience of buying businesses help you when you make an acquisition now?

PT: My experience has taught me not to become emotional about the business or get caught up in the energy that comes about when making a deal. I have trained myself to know when to walk away if the sellers or their advisors begin to increase or change their expectations.

BFS: Have you ever regretted a purchase or in hindsight felt that you paid too much?

PT: Yes.  I thought one of the manufacturing businesses did not really have an adequate product platform to build upon; it simply chased fad after fad.  I got caught up in the latest fad and paid too high a price for a business that didn't survive even five years after I bought it.

BFS: How many businesses have you started as opposed to bought and why do you tend to buy rather than start businesses?

PT: I have never started a business from scratch.  I have started business lines or divisions within a company and they were always more expensive and less profitable than the businesses I bought - with the exception of the aforementioned business!

BFS: Any advice for inexperienced business buyers?

PT: Get help evaluating the business financially and operationally from well experienced public accountants and business lawyers.  In the US we have SCORE, a non-profit arm of the SBA. 

The service core of retired executives is a group of business people from all sorts of businesses that will help you evaluate any type of business and the service is free.

BFS: Any other advice for buyers?

PT: Do not attempt to turn a business around unless you've done it before and are supremely confident about your ability to do that. Otherwise pay a little more than you think is right for the positive cash flow and really enjoy the business you buy.

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