Thinking about buying a manufacturing business in Melbourne?
A factory full of machinery, a strong order book and years of trading history can look like a very safe business to buy.
But there’s a problem.
The machines aren’t the business.
The business is the network around them.
The suppliers who keep production moving.
The customers who keep placing orders.
The employees who know how everything works.
The lease that gives you somewhere to manufacture.
And the owner relationships that may have taken decades to build.
If any of those disappear when the current owner leaves, the business you thought you were buying can look very different after settlement.
That’s why buying a manufacturing business requires more than checking the profit on the latest tax return.
You need to understand what you’re actually buying, what could change after settlement, and how a lender will assess the transaction.
In this guide, we’ll explain:
Throughout the guide, we’ll follow Marcus, a fictional manufacturing buyer based on the types of situations we see at Probiz Finance. His story combines common questions and mistakes that first-time business buyers can encounter.
Buying an established manufacturing business can give you something that a new startup can’t: an operating business with customers, equipment, suppliers, employees and an existing production system already in place.
For the right buyer, that can be a significant advantage.
Manufacturing businesses often own:
These assets have identifiable value and may provide security for lenders.
That can make financing an asset-heavy manufacturing business different from financing a business where most of the purchase price is goodwill.
However, “it has lots of assets” doesn’t automatically mean the assets are worth what the seller says they are.
A 15-year-old machine may appear on a balance sheet at one value while having a very different resale value today.
We’ll come back to this later.
Manufacturers often sell to other businesses rather than directly to consumers. That can mean:
Larger orders
Repeat purchasing
Longer customer relationships
Contracted revenue
Established supply arrangements
But there’s an important catch.
A full order book doesn’t necessarily mean secure revenue.
You need to know who is placing those orders and whether they’ll continue doing so after the ownership changes.
We’ll look at customer concentration in detail below.
Starting a manufacturing operation can be expensive and difficult. You need:
Equipment
Premises
Skilled employees
Supplier relationships
Production processes
Certifications
Customers
Quality systems
An established manufacturer may already have all of these. Those barriers can protect the business from new competitors. But they can also create complexity for a buyer.
The more complicated the operation, the more you need to understand before you buy it.
There isn’t a simple yes or no answer.
The opportunity depends on the particular business, its customers, supply chain, equipment, margins and market. The broader Australian business environment also matters.
Australia has around 2.72 million businesses, with the total business count increasing by about 2.5% in 2024–25. Manufacturing is not the fastest-growing part of the economy, but that doesn’t mean individual manufacturing businesses aren’t attractive acquisition opportunities.
For a buyer, the more useful question isn’t:
“Is manufacturing growing?”
It’s:
“Is this particular manufacturing business positioned to remain profitable under new ownership?”
That means looking at the actual business rather than relying on the industry headline.
Let’s meet Marcus. Marcus is 46.
After more than 20 years managing production for someone else, he decides he wants to own the factory rather than run somebody else’s.
Eventually, he finds what looks like exactly the opportunity he’s been waiting for. An established manufacturing business in Melbourne’s outer suburbs.
It has:
22 years of trading history
A full order book
Experienced employees
Established customers
Strong reported profits
A retiring owner
Marcus starts imagining himself on the factory floor. The numbers appear to work.
Then we ask him one question:
“Who supplies your most important component?”
The answer changes the conversation. Not because the business is bad. It is genuinely good. But Marcus is about to discover something every manufacturing buyer should understand:
A manufacturing business is only as strong as the relationships holding the production system together.
A supplier provides the raw materials, components or parts a manufacturer needs to produce its products. It sounds straightforward. Until one supplier stops supplying. Then production can stop with it.
That’s why supplier due diligence should be one of the first things you do when buying a manufacturing business.
Ask:
Who are the key suppliers?
What percentage of purchases comes from each?
Are there written agreements?
Are prices fixed or negotiable?
How long has the relationship existed?
Can another supplier provide the same component?
How quickly could you switch?
Does the current owner personally manage the relationship?
Manufacturing supply chains often involve both Australian and overseas suppliers. Each comes with different considerations.
Australian suppliers may offer:
Faster delivery
Easier communication
Easier relationship management
Fewer international shipping variables
Less foreign-exchange exposure
The trade-off may be higher costs.
Overseas suppliers can provide significant cost advantages. But you also need to consider:
Shipping delays
Currency movements
Import costs
Tariffs and duties
Geopolitical disruption
Quality control
Minimum order quantities
The strength of the relationship
And there’s another risk that is easy to miss.
What if the relationship exists only because of the current owner?
Marcus’s target business bought a critical component from a single supplier in Guangzhou.
The relationship had existed for 15 years. But there was no formal written agreement. Pricing had been negotiated through a long-standing personal relationship between the two owners.
That sounds like a strong relationship. Until you become the new owner.
Marcus hadn’t spoken to the supplier. He didn’t know whether the pricing would continue. He didn’t know whether the supplier would prioritise his orders. And he didn’t have a backup supplier.
That’s not necessarily a reason to walk away.
But it is a reason to change the questions you’re asking—and potentially the price you’re willing to pay.
Consider a simplified example.
Suppose the business purchases 12,000 components each year. The existing owner pays $45 per component. A new owner without the same relationship is quoted $58.
That’s an additional:
$13 × 12,000 = $156,000 per year
A business supposedly making $300,000 in annual profit could suddenly lose more than half that profit simply because one supplier relationship wasn’t transferable.
The figures are illustrative, but the lesson is real:
Never assume a supplier relationship transfers simply because the business transfers.
A full order book can make a manufacturing business look extremely attractive. But don’t stop at:
“How much is currently on order?”
Ask:
“Who placed those orders—and will they still be ordering after settlement?”
This is where customer concentration becomes important.
Customer concentration measures how much of a business’s revenue depends on a small number of customers.
For example:
If annual revenue is $2 million and three customers account for $1.4 million, then around 70% of revenue comes from three customers.
That is significant concentration risk. It doesn’t automatically make the business bad. But it should change how you assess it
Marcus initially estimated that the top three customers represented about one-third of revenue. The actual figure was close to 70%. One national retailer alone represented around $900,000 of the $2 million annual revenue.
Then came the bigger problem.
The customer contract contained provisions allowing the retailer to reconsider or re-tender the arrangement following a change of ownership. So Marcus wasn’t simply buying $2 million of revenue.
He was buying a business where a large portion of the revenue base had a potential exit door at settlement.
That’s a very different proposition.
Who are the top 10 customers?
What percentage of revenue does each represent?
How long have they been customers?
Are there written contracts?
Do contracts transfer to a new owner?
Can customers terminate following a change of ownership?
Are prices fixed?
How frequently do customers re-tender?
Does the relationship belong to the company—or to the current owner personally?
The more concentrated the revenue, the more important customer-transferability becomes.
Don’t treat 40% customer concentration as an automatic deal-breaker. Treat it as a reason for deeper investigation.
The seller has owned the business for 20 years.
That sounds reassuring. But you should still ask:
Who owned it before them?
And:
Why is the current owner selling now?
A stable ownership history combined with a genuine retirement sale may be reassuring. But a business that has changed hands several times in a short period deserves more questions.
Ask:
Sometimes the ownership history tells you something the profit-and-loss statement doesn’t.
Due diligence is the process of checking whether the business is actually what the seller says it is before you commit to buying it.
And here’s an important distinction:
Due diligence isn’t about proving the business is good. It’s about finding the problems before you pay for them.
A lender will conduct its own assessment. Your job is to find the issues first.
Check:
☐ Profit and Loss Statements
☐ Balance Sheets
☐ Tax Returns
☐ BAS Statements
☐ Cash Flow
☐ Outstanding loans
☐ Working capital requirements
☐ Owner expenses
☐ One-off expenses
☐ Capital expenditure requirements
Check:
☐ Major suppliers
☐ Supplier concentration
☐ Written agreements
☐ Offshore exposure
☐ Currency exposure
☐ Shipping arrangements
☐ Alternative suppliers
☐ Pricing agreements
Check:
☐ Customer concentration
☐ Major contracts
☐ Contract transferability
☐ Customer retention
☐ Re-tendering requirements
☐ Revenue by customer
☐ Length of customer relationships
Check:
☐ Equipment age
☐ Equipment condition
☐ Production capacity
☐ Maintenance history
☐ Inventory turnover
☐ Key employees
☐ Owner dependency
☐ Quality certifications
☐ Production systems
Check:
☐ Factory lease
☐ Lease transfer requirements
☐ Lease options
☐ Licences
☐ Environmental requirements
☐ Employee entitlements
☐ Existing disputes
☐ Intellectual property
Click Here to find due diligence to for BUSINESS ACQUISITION
One good year can be misleading. It could be:
an unusually large contract
a temporary margin improvement
a cost reduction that won’t continue
a one-off customer
a business owner preparing the business for sale
Three years gives you a trend.
You want to know:
Are sales increasing?
Are margins improving?
Are profits stable?
Are material costs rising?
Is the latest year unusually strong?
Is the business becoming more or less efficient?
For a manufacturing business, this matters particularly because margins can move quickly when material, energy, freight or labour costs change.
The profit shown on the tax return isn’t always the same as the profit available to a new owner.
This is where profit normalisation comes in.
You may need to:
Add back:
genuine one-off expenses
certain owner-specific costs
expenses that won’t continue after settlement
But you may also need to:
Subtract:
a realistic wage for the person replacing the owner
additional management costs
recurring costs that have been understated
This second part is where buyers often make mistakes.
The seller’s tax return shows: $300,000 profit
Looks attractive. But let’s normalise it.
Adjustment | Amount |
Reported profit | $300,000 |
Add back: owner car and phone expenses | +$18,000 |
Add back: one-off legal expense | +$25,000 |
Less: realistic factory manager salary | -$110,000 |
Normalised profit | $233,000 |
The business is still profitable.
But the real number is $233,000—not $300,000.
That difference matters when you’re deciding what the business is worth and how much debt it can comfortably support.
The figures are illustrative.
Manufacturing businesses can have a large workforce. That means your true labour cost isn’t simply the wages shown on a headline payroll figure.
You may also need to consider:
Superannuation
Leave entitlements
Workers compensation
Payroll-related costs
Recruitment
Training
Overtime
And from 1 July 2026, Australia’s Payday Super changes require superannuation contributions to be paid more frequently than under the previous quarterly system.
For a manufacturing business with a significant payroll, cash-flow planning around employee costs matters.
Always confirm current employment and tax obligations with your accountant or relevant adviser.
None of these automatically means you should walk away.
But each deserves attention.
Especially if there is no written agreement or backup.
Particularly where the customer can terminate or re-tender after a change of ownership.
A machine that looks like an asset today may become a $200,000 capital expenditure shortly after settlement.
Stock sitting on shelves isn’t the same thing as cash.
A manufacturer cannot easily move production overnight.
If the knowledge leaves with them, the business may be worth less than it appears.
If the current owner personally handles all quoting, sales, purchasing and customer relationships, ask what you’re actually buying.
If the current owner disappeared for eight weeks, would the factory keep operating?
If the answer is yes, you may be buying a genuine business.
If the answer is no, you may be buying a job with debt attached.
That distinction matters enormously when you’re calculating the return you’re actually going to earn.
Manufacturing buyers naturally focus on the machinery. And understandably so.
A factory full of equipment can represent hundreds of thousands—or millions—of dollars of value.
But ask:
How old is each machine?
Is it still supported?
Are replacement parts available?
What maintenance has been done?
What is its actual resale value?
How much production capacity does it have?
How much would it cost to replace?
A machine can be fully depreciated for accounting purposes and still be extremely valuable.
The reverse is also true.
A machine can appear prominently on the balance sheet but have limited real-world resale value.
Book value is not the same thing as market value.
This is another trap for manufacturing buyers.
Marcus walked into a warehouse full of stock. His first thought was:
“That’s a $400,000 asset.”
Not necessarily.
Only stock that can actually be sold is useful.
Inventory turnover measures how quickly a business sells and replaces its stock. Fast-moving inventory generally converts into cash more quickly.
Slow-moving inventory:
The books showed: $400,000 of inventory
After examining how quickly it moved:
Stock | Book Value | Assessment |
Fast-moving | $240,000 | Genuine usable value |
Slow-moving | $110,000 | Requires discount |
Obsolete | $50,000 | Potentially very limited value |
So the warehouse may contain $400,000 of stock on paper. But only around $240,000 may represent genuinely liquid inventory. And lenders know this too.
Inventory is generally assessed more conservatively than cash or property, particularly when it is specialised or slow-moving.
Yes. A short or uncertain factory lease can affect both the value of the business and how a lender views the transaction.
Imagine buying a manufacturing business with:
expensive fixed machinery
specialised production systems
a large customer base
But only 18 months remaining on the factory lease.
Where are you going to put the factory if the lease isn’t renewed?
Moving may involve:
new premises
equipment relocation
production downtime
customer disruption
significant costs
That’s why buyers should examine the lease early.
Check:
Remaining term
Renewal options
Assignment provisions
Landlord consent
Rent reviews
Make-good obligations
Personal guarantees
Don’t assume an option will automatically be exercised.
Get the legal position checked before you become financially committed.
You’re not just buying today’s profit.
You’re buying the business’s future earning potential.
Several broader factors are worth considering when assessing a manufacturing acquisition.
Businesses and governments continue to place greater emphasis on supply-chain resilience, which can create opportunities for Australian manufacturers in certain sectors.
Manufacturing can be energy-intensive.
Understand how exposed the business is to:
Electricity prices
Gas
Raw materials
Freight
Imported components
A competitor investing heavily in automation may produce faster and cheaper than a business running older equipment.
If a business depends on difficult-to-replace skilled workers, employee retention becomes an important part of the acquisition.
The key question isn’t whether the entire manufacturing sector is “good” or “bad.”
It’s:
Is this particular business moving with its market—or against it?
This may be the most important question of all.
A seller might tell you:
“The business makes $300,000 a year.”
And the asking price might be $1.2 million.
That sounds like a 25% return.
But is it?
Not necessarily.
You need to account for:
Let’s run the numbers.
Amount | |
Reported profit | $300,000 |
Normalised profit | $233,000 |
Less: illustrative finance cost | -$55,000 |
Less: equipment replacement allowance | -$30,000 |
True annual return | $148,000 |
Marcus may still have a good business. But the economics are very different from the seller’s headline number.
The lesson isn’t:
“Never buy a manufacturing business.”
It’s:
Buy the business based on the honest return—not the brochure return.
All figures are illustrative.
There isn’t one standard deposit.
It depends on:
As an indicative guide:
Manufacturing Business | Indicative Buyer Contribution* |
Manufacturing business with commercial property | 20–30% |
Asset-heavy manufacturing business | 30–40% |
Manufacturing business with significant goodwill | 50%+ |
*Indicative only. Actual requirements vary between lenders and individual transactions.
It comes back to security.
A lender generally has greater comfort when the transaction includes assets that can be independently valued and potentially sold.
For example:
Commercial property → stronger security
Machinery → tangible security
Vehicles → tangible security
Inventory → potentially usable, but discounted
Goodwill → much harder to recover
That’s why two businesses selling for the same price can require very different buyer contributions.
Sometimes, yes—but goodwill is generally treated more conservatively than tangible assets.
Goodwill may include:
Customer relationships
Brand
Reputation
Trading history
Systems
Future earning capacity
A lender can’t repossess goodwill and sell it at auction if the borrower defaults. That doesn’t mean goodwill has no value.
It means the lender has to assess it differently.
Businesses with strong, proven and transferable cash flow may support some goodwill funding, but buyers should generally expect to contribute more equity where goodwill represents a large part of the purchase price.
This is where many first-time buyers make another mistake.
They hear:
“We can’t finance the full amount.”
And assume:
“The deal is dead.”
Not necessarily.
Sometimes the answer is to change the structure rather than abandon the business.
Due diligence isn’t just about finding risks. It’s also evidence for negotiation.
If you discover:
you may have legitimate reasons to revisit the purchase price.
Vendor finance allows the seller to leave part of the purchase price outstanding and receive repayments over an agreed period.
For example:
Buyer contribution + lender finance + vendor finance = purchase price
It can help bridge a funding gap while keeping the seller financially involved in the transition.
An earn-out makes part of the purchase price dependent on future performance.
For example:
$1 million at settlement
$200,000 if agreed revenue or profit targets are achieved.
This can be useful where the buyer and seller disagree about how much future performance is worth today. It should be carefully documented with appropriate legal advice.
A manufacturing acquisition doesn’t necessarily have to be funded through one facility. Depending on the transaction, you may be able to structure:
Equipment finance for machinery
Commercial property finance for property
Acquisition finance for the business
Working capital finance for ongoing cash flow
The objective is to match each part of the transaction with the most appropriate funding structure.
Before signing a contract or paying a deposit, ask:
Who are the top customers?
What percentage of revenue comes from each?
Do their contracts transfer?
Can they terminate after a change of ownership?
Who are the critical suppliers?
Is there supplier concentration?
Are key suppliers offshore?
Are prices contractual?
Is there a backup supplier?
What do three years of financials show?
What is the normalised profit?
What costs will exist after settlement?
How much working capital is required?
How old is the machinery?
What needs replacing?
What is the real resale value?
What maintenance is required?
How quickly does stock move?
How much is obsolete?
Is the stock included at cost or another valuation?
How long remains?
What renewal options exist?
Can the lease be transferred?
Does the landlord need to approve the buyer?
Why is the owner selling?
Who owned the business before?
Is the business dependent on the current owner?
What deposit will this particular business require?
How much of the purchase price is goodwill?
What assets can actually support the finance?
What happens if the lender’s valuation is lower than the purchase price?
It depends on the asset mix and the lender. As an indicative guide, asset-heavy manufacturing businesses may require around 30–40% buyer contribution, while a transaction that includes commercial property may require less. Businesses with significant goodwill can require substantially more.
Often, yes.
Depending on the transaction, equipment may be financed separately from the acquisition itself. Separating assets can sometimes create a more appropriate finance structure because each facility is assessed against its own security and risk.
There isn’t one universal risk.
However, customer concentration, supplier concentration, ageing equipment, slow-moving inventory, owner dependency and short factory leases are all important areas to investigate.
The biggest risk is often the one you didn’t discover before signing.
Yes.
A short lease or uncertain renewal position can affect both the business’s value and a lender’s assessment, particularly where the business depends on specialised premises or fixed machinery.
Yes.
First-time buyers can obtain manufacturing acquisition finance, particularly where they have relevant industry or operational experience, a sensible contribution and a business with sustainable cash flow.
Potentially.
Goodwill can form part of a finance structure where the business has strong and transferable cash flow, but lenders generally take a more conservative approach because goodwill cannot be repossessed and sold like machinery or property.
Yes.
Vendor finance can sometimes bridge the gap between the buyer’s contribution, lender funding and the agreed purchase price.
It isn’t suitable for every transaction and should be properly documented with legal and financial advice.
You can inspect the machines.
You can count the stock.
You can read the financial statements.
You can look at the order book.
But before you do any of that, ask yourself:
What happens to this business when the current owner walks out the door?
Do the customers stay?
Do the suppliers stay?
Do the employees stay?
Does the lease transfer?
Do the contracts survive?
Does the machinery still have useful life?
And most importantly:
Does the profit still exist?
That’s what you’re buying.
Not the factory.
Not the machines.
Not the seller’s story.
You’re buying the ability of the business to keep producing cash after ownership changes.
Buying a manufacturing business can be an excellent opportunity.
You may be acquiring established customers, valuable equipment, experienced staff, supplier relationships and years of operational know-how. But manufacturing businesses can also hide risks that aren’t obvious from the factory floor.
A full warehouse doesn’t necessarily mean valuable inventory.
A full order book doesn’t necessarily mean secure revenue.
A profitable tax return doesn’t necessarily represent the profit available to a new owner.
And expensive machinery doesn’t necessarily mean strong lender security.
The strongest buyers aren’t necessarily the ones with the biggest deposits. They’re the ones who understand what they’re actually buying.
Marcus didn’t need to walk away from the factory. He needed to understand the business behind the machines.
Once the supplier relationships, customer concentration, inventory, equipment, lease and real profit were properly examined, the deal could be assessed on its real economics rather than the seller’s headline numbers.
That’s the difference between buying a factory and buying a business.
Before you sign a contract or pay a deposit, it can be worth understanding what lenders are likely to support.
At Probiz Finance, we help Melbourne business buyers assess acquisition finance, understand their likely contribution, compare funding structures and navigate the process from application through settlement.
We can help you:
Understand your borrowing position
Estimate your deposit requirements
Assess different finance structures
Consider equipment and property finance alongside the acquisition
Identify suitable lender options
Navigate the approval process
The best time to understand your finance isn’t after you’ve fallen in love with the factory. It’s before you make the offer.
This article is general information only and does not constitute financial, legal or taxation advice. Marcus is a composite illustration, not a specific client, and figures used throughout the article are illustrative only. Finance is subject to lender assessment and approval. Business acquisitions can involve significant legal, financial and tax considerations. Consider obtaining independent legal, accounting and taxation advice before entering into a transaction.
Please feel free to contact us. We’re super happy to talk to you.
Feel free to ask anything.