Business Valuation Blog | Understanding Buying / Selling a Company

Small Business Service Providers vs. Product Manufacturers

Posted by Business Valuation Specialists LLC on May 23, 2022 7:30:00 AM


Business Valuation Appraisal Appraisers Products vs Services

There are distinct differences between companies that provide a third-party service to their clients versus those which create products for sale to other manufacturers or end-users. Examples of service providers would be banks, financial advisors, insurance companies, vehicle repair shops, salons, spas, hotels, medical facilities, consultants, and appraisers. These services would be considered intangible goods.

Product manufacturers create tangible goods from raw materials while selling at a wholesale or retail level, depending on the end product and client base. They may act as a parts manufacturer for a larger manufacturer, such as automotive or aerospace companies. Others may produce end product goods that are sold in stores and other retail outlets. Sporting goods, furniture, clothes, food, and health supplements to name a few.

Some service providers may also offer tangible products that complement their business, however, these products are typically manufactured by other companies, and so act merely as a retail outlet to these producers.

Besides the obvious distinction between products and services, other variances of note would be how these companies are affected by changing markets and economies.

Manufacturers are oftentimes reliant on other companies who produce the raw materials necessary to build their products. Therefore, supply chain issues such as those faced today can have a negative impact on their ability to maintain normal levels of production. Even if supplies are available, prices may increase from their suppliers dealing with these issues, which will lead to price increases or cost-cutting concerns to maintain market share.

Service providers typically don’t face these supply chain issues, however, in an inflationary economy such as we have today, their customer base may decide to hold off on spending the money for their services, creating challenges to maintaining or growing revenues.

For small businesses, these types of challenges are always present, however much more so than in the last 2+ years of unprecedented global and local economic concerns. To survive and even thrive in these environments, regardless of the challenge, takes a savvy business owner who can think both short and long term to create opportunities where others see roadblocks.

Understanding the most critical components affecting your business, year in and year out, whether your company is a service provider or manufacturer is the first step toward realizing solutions to combat these challenges. Making adjustments without sacrificing integrity or quality is the key to becoming a long-term successful business. There will come a day when the world looks much brighter, so do what you can to prevail in today's battles, so you can win the war.

Tags: small business valuation services, tangible, intangible, services, products