When does the asset floor beat the earnings story?
Run both stacks. Earnings value is the size-band × sub-sector multiple on SDE or adjusted EBITDA, cash-free and debt-free, before the working-capital peg. Asset value is OLV of machinery and equipment plus normalized net working capital, minus environmental corrections and deferred maintenance.
If the second stack is larger, stop arguing a turn. You are in an asset conversation that may still include a modest going-concern premium for a trained crew and a transferable customer list. You are not in a “4x story” that ignores the iron.
Census CBP 2023: 284,452 manufacturing establishments, 68.4% under 20 employees (Source: Census). Plenty of those shops have more iron than earnings. A 16-person CNC file with $310,000 of SDE at the BizBuySell-style 2.0x–3.6x cell is $620,000–$1.12 million of earnings value. A decent late-model cell list can print more than that on OLV. The floor is not an insult. It is arithmetic.
GF Data’s 5.9x under $25 million EV and 7.2x average (Q1 2026 manufacturing recap; Source: Iconic) describe larger going-concern deals. They are the wrong tool for talking yourself out of an asset floor on a Main Street shop.
How do you compare OLV plus NWC to enterprise value?
Hire the appraiser for OLV if the iron might win. M&E appraisals define FMV in continued use, OLV, and FLV. Jason Taken will not freelance those definitions. Lenders often want OLV because they have to sell the iron if the note fails. Going-concern buyers care about FMV in continued use. Auction math is FLV and is the wrong instrument for a healthy shop — unless the shop is not healthy.
Working capital is AR + inventory − AP, aged and written down. Inventory needs an E&O pass before it enters either stack. Percentage-of-completion and job-cost WIP are where manufacturers stop resembling software companies.
Environmental corrections come off the asset stack. Phase I under ASTM E1527-21 / EPA AAI (40 C.F.R. 312) is how adults start that conversation (Source: eCFR / AAI). A recognized environmental condition is an escrow, a price chip, or a walk — never a verbal shrug (see Acquisition Stars on manufacturing environmental diligence).
| Stack | What goes in | What stays out |
|---|---|---|
| Earnings value | SDE or adj. EBITDA × size × sub-sector cell | Book inventory as a plus-up; the building; synergies |
| Asset floor | OLV of M&E + normalized NWC − corrections | FLV on a healthy shop; owner’s wish list; peak-year SDE |
| Hybrid (rare, disclosed) | Floor plus a documented crew / backlog premium | A silent “split the difference” |
What shops hit the floor most often?
Older job shops and commodity fabricators that kept buying machines through soft years. Distressed plants after a customer loss — start at valuing a distressed manufacturer. Print shops whose process was replicated by a cheaper converter. Any file where the owner treated capex as a hobby.
Certified medical and aerospace plants hit the floor less often because the going-concern cells are higher — 6.0x–8.0x EBITDA at $1–3M, 6.5x–9.0x at $3–10M on this site’s synthesized table. They can still hit it after a program cancel or a lapsed certificate that kills access.
Fed G.17 utilization 76.0% (July 2026) is national climate (Source: Fed G.17). A shop that claims 95% on one-shift overtime while the iron is 1998-vintage is telling you earnings are borrowed from people, not from assets. Price the hiring plan in the earnings stack and the rebuilds in the asset stack.
How should a CIM present both numbers?
Show the earnings cell and the asset floor on the same page. Label the earnings cell as advisor-survey / reported-deal range, not an appraisal. Label the floor as pending a written OLV if you do not have one yet. Buyers who smell a hidden floor will assume the worst. Sellers who hide a high floor leave money on the table when a liquidator or a strategic wants the cells.
The equipment guide is what the machine list should look like. Make, model, year, control, serial, owned versus leased, lienholder, last rebuild, and whether the cell is in the quoted capacity. A brochure photo is not a list.
Real estate stays out of both stacks unless you say otherwise. A sale-leaseback or a 504 is a structure choice on how real estate affects value. Burying a building inside “the multiple includes the plant” is how sellers give away a warehouse.
What is not a split-the-difference?
If OLV plus clean NWC is $1.4 million and a 3.0x SDE story is $900,000, the conversation is $1.4 million minus corrections, plus any documented premium for backlog and crew. It is not $1.15 million because someone likes round numbers.
If earnings value is $28 million on a $4.1 million-EBITDA medical molder at the 6.5x–9.0x $3–10M cell and OLV is $6 million, the floor is a lender fact, not the price. Do not let a buyer talk you down to iron because they prefer asset deals.
Manufacturing valuation methods is the sequence. Worked examples put both stacks on sample files. Sellers: sell my manufacturing business. Buyers: buy a manufacturing business.
BizBuySell’s 2025 review put manufacturing at a 223-day median close (Source: BizBuySell year-in-review). Asset-heavy arguments lengthen that clock when the list is late. Bring the appraiser in before the CIM if the floor might win.
How to talk about the floor without sounding like a liquidator
Say the going-concern cell first. Say the written or estimated OLV second. Say the delta. If earnings win, the floor is a lender fact and a sanity check. If the floor wins, the conversation is an asset deal plus any documented premium for crew and backlog. That is adult language. It is not a threat.
Sellers hear “asset” and think failure. Buyers hear “earnings” and think they can ignore iron. Both are wrong on a tired print shop and on a glossy tooling house that over-bought five-axis.
A useful CIM footnote: “M&E appraisal engaged / not yet engaged; standard requested: OLV.” Silence is how buyers assume the worst list.
Working examples of the comparison, without treating them as quotes
Illustrative, electronics EMS, ebitda-1-3m: $1.5 million adjusted EBITDA, commodity column 4.0x–6.0x, earnings $6.0–$9.0 million. SMT lines obsolete fast; written OLV might be $2.1 million. Earnings still win. The fight is inventory obsolescence, not the floor.
Illustrative, textiles, sde-under-1m: $240,000 SDE at 2.0x–3.2x, earnings $480,000–$768,000. Cut-and-sew equipment OLV $410,000 plus clean NWC $190,000. Close. One environmental chip and the floor wins. Do not argue 5x.
These sketches exist so you run the comparison. They are not your plant. Worked examples has a longer CNC and fab pair.
What counsel and the allocation memo have to do with the stacks
Form 8594 / IRC § 1060 still wants an allocation among iron, inventory, and goodwill. If the deal is truly an asset floor, goodwill may be thin. If the deal is a going-concern cell, goodwill is the residual after iron and NWC. Mixing the stories in the allocation is how tax and the CIM stop matching. That is CPA and counsel work. Jason Taken will flag the mismatch. He will not prepare the form.
How allocation memos go wrong when the stacks are mixed
Form 8594 wants iron, inventory, and goodwill to tell one story. If the deal is a floor, goodwill is thin and the iron story must match the OLV. If the deal is a going-concern cell, goodwill is the residual after iron and NWC. Writing a going-concern CIM and an asset-floor allocation is how tax and the sale stop matching. CPA and counsel write the form. The broker flags the mismatch.
Say the cell first, the written or estimated OLV second, and the delta third. If earnings win, the floor is a lender fact. If the floor wins, stop arguing a turn. Adult language is not a liquidation threat. It is arithmetic. Engage the appraiser before the CIM if the delta looks close.
Educational information only. Not an appraisal and not tax, legal, or engineering advice. Confirm with M&A counsel, a CPA, and qualified M&E and real-estate appraisers. Jason Taken is a business broker. No value is guaranteed.
A three-line comparison that belongs on page one of a tired-shop CIM
Going-concern cell. Written or estimated OLV plus clean NWC minus corrections. The delta. If earnings win, the floor is a lender fact. If the floor wins, stop arguing a turn. Adult language is arithmetic, not a liquidation threat. Engage the appraiser before the CIM if the delta looks close. 8594 allocations must tell the same story as the stack you claimed. A going-concern CIM with an asset-floor allocation is how tax and the sale stop matching. CPA and counsel write the form. The broker flags the mismatch.
A closer read on three lines
Going-concern cell. Written or estimated OLV plus clean NWC minus corrections. The delta. If earnings win, the floor is a lender fact. If the floor wins, stop arguing a turn. Adult language is arithmetic, not a liquidation threat. Engage the appraiser before the CIM if the delta looks close. 8594 allocations must tell the same story as the stack you claimed. A going-concern CIM with an asset-floor allocation is how tax and the sale stop matching. CPA and counsel write the form. The broker flags the mismatch. Do not split the difference because the number is round.