Success Story: Sale of a Food Manufacturer to an Investment Company
Wise Consulting resolved the manufacturer’s inventory and reporting problems so they could pass buy-side due diligence and be sold.
A food manufacturer had grown with three partners but, due to health concerns of one partner and the death of another, they needed to figure out how to exit the business. Previous attempts to sell the business had failed, primarily due to concerns about the company's financial processes. One of the main concerns for potential buyers was the proper valuation of inventory.
Following an introduction from a business broker, Wise Consulting was brought in to troubleshoot inventory concerns, which ultimately led to a larger reporting issue affecting stakeholders, including the CPA, business brokers, and regulatory agencies. During the assignment, Wise was tasked with issuing internal financial statements that carried weight and could be trusted by others. Wise also had to navigate how to manage prior-year adjustments.
Challenges
GAAP Reporting: The manufacturer relied on QuickBooks Online for tracking money and Fishbowl Inventory for managing the ingredients, packaging, and finished goods manufacturing process. Prior to Wise Consulting’s involvement, financial oversight was limited to an office manager, an HR manager who also handled payroll, and an AR/AP clerk. While the accounting system was fairly clean, key processes surrounding inventory value and review, A/P and A/R were missing.
Inventory Issues: At the onset, Wise discovered two warehouses were full of raw materials, work-in-progress (WIP), and finished goods, but the inventory was aggressively expensed, as if on a cash basis. This resulted in misstated accrual-based financials and concerns regarding due diligence.
Process Inefficiencies: Vendor bills were being paid by check far in advance, resulting in limited cash flow visibility, and the company never formally closed accounting periods.
Due Diligence Concerns: Previous attempts to sell the company stalled because inventory and accounting treatment couldn’t be verified. Furthermore, add-backs/discretionary earnings were not communicated to buyers. Incorrect journal entries made by the internal team further eroded buyer trust.
Scope of work
Wise Consulting stepped in as a bridge between ownership, management, and potential buyers—and not to replace staff but to guide them in building sustainable processes. Our approach included:
1) Working with the Staff: Most of the staff were already doing a good job, and tasks such as payroll, A/R, and A/P were covered. We helped adjust these areas to improve the accuracy of financial reporting and also enhanced cash flow by introducing new tools for processing A/P and bill payments.
2) Analysis of Inventory & Accounting Processes: We needed to access the Inventory Modules to understand the errors and identify the causes of the material misstatement.
3) Correct Inventory: Wise Consulting helped to review the Inventory reports from the separate Inventory System, which initially reported a $115 million inventory value.
According to management, the real value of the Inventory on the floor of the two locations was about $3.3 million at the 2022 fiscal year end (FYE) and $4.8 million at the 2023 FYE.
According to the financial statements, only $1.0 million of inventory was reported.
Physical counts of each location were also completed to support the $5.0m value, so the scope of our assignment became clear: Why is Inventory being overstated on the Inventory platform and understated on the financials? Once we determined the quantity and unit of measure corrections to problem parts, we were able to assess the proper adjustments in the inventory platform.
4) Analyze & Report to the CPA: We reported financial statement corrections to the manufacturer’s CPA, allowing them to develop a reporting strategy for applying corrections in the proper periods for tax compliance. Using this information, we were then able to provide a detailed adjustment to the 2022 and 2023 FYE financials to present a normalized financial statement that a buyer could rely on.
Results
Process Improvements: Introduced proper monthly accounting period closes, implemented ACH for vendor payments, and created accountability across both accounting and Inventory teams—identifying mistakes, explaining why processes needed to change, and fixing root issues rather than symptoms.
Operational Insights: Developed the ability to track item costs through the cycle (e.g., tomato costs), giving leadership visibility into key cost drivers.
Transaction Support: Helped sift through buyer letters of intent (LOIs), identify serious buyers, and supported management and the broker through buyer interviews to pick the right buyer.
Buyer Preparation: Prepared financials for management first, then reported to brokers and buyers, explaining adjustments to EBITDA. We also worked directly with buyers’ accounting teams to ensure they were comfortable with financial statements. As a result, Buy-side due diligence passed smoothly, with transparent explanations and documented corrections buyers could trust.
In 4Q 2023, we began searching for a new buyer who could now understand the separate systems that the manufacturer utilized for operations.
In 2Q 2024, we implemented an adjustment to the inventory system to report on a FIFO basis, rather than average cost, which would provide even more accuracy to the financial statements.
In 3Q 2024, the new buyer took control of the manufacturer.
The Aftermath
The company successfully sold at a 6x EBITDA multiple.
Our client sold their business for $25.8 million, creating a generational liquidity event and accomplishing their goal of building wealth for their family.
One of the partners remains involved in the business, assisting with the transition to the new owners.
The new owners now have the clarity to run the new business and adjust to their style of ownership.
We have also integrated the accounting and inventory systems for more transparent reporting as a management tool.
Wise Consulting is continuing to operate in a fractional capacity to support the new team, led by a new CEO and finance manager.
The company is now positioned to triple in size with the right processes and controls in place.
Key Takeaway
This manufacturer’s story shows how cleaning up accounting, fixing inventory valuation, and building reliable processes not only restored credibility but also unlocked real enterprise value. By serving as the bridge between old practices and new ownership, we helped the company complete a successful sale and laid the foundation for future growth.
Wise Consulting can bring order to your accounting and financial chaos. If you don’t trust your numbers, or those of your clients if you’re a business broker, inhibiting your ability to make sound business decisions, speak with one of our team members about our free financial assessment as the first step for you to gain financial clarity.
