What is my distillery worth?

[navenjohnson]

I am interested in understanding better the metrics around appraising my business. 

Can anyone give me a detailed list of what numbers I should be using along with specifics like equipment depreciation and how bank debt, barrel stocks, trademarks and such might affect the appraisal?

PM or open forum 

Thank you

[Southernhighlander]

Typically a business is said to be worth two to three times what it grosses per year, however the truth is that it is actually worth what someone is willing to pay which may be more or less than that.  The last business that I sold I sold it for twice what the business assets where worth but 1/2 of it's gross yearly income, however I was very happy with what I received.  If you are doing this for a bank loan you should bring in a professional to appraise the business. 

When I did bank loans I always borrowed against my equipment or property never the whole business, so I did my own appraisals for that but I dealt with a small town bank and the loan officer was my friend. In my current business I have no debt which keeps my overhead and the prices for what I sell are low.

[Roger]

You have a few variables:

1 - Your real-estate is worth whatever it is worth, based on the 3 rules of real-estate: Location, Location, Location.

2 - Your equipment is worth replacement cost. That means if it is brand spanking new, what is would cost brand spanking new. It it is used and beat to shit, it is worth used price.

3 - your debt, is your debt. It doesn't belong to anyone else, and you can't monetize it. Whatever you get for whatever and however you sell your company (or component parts) is less that debt.

4 - your barreled inventory is valued at cost, plus appreciation for age.

5 - your trademarks and IP have no value, other than if sold alongside the operating business, to monetize brand loyalty.

6 - your operation as an ongoing enterprise is worth 5-6x net  (sometimes the same as 1x revenue) with some negotiation for key-man wage/value. (note) you can also typically add 1 & 2 to that number, if the buyer wants to keep it where is, as is.  But remember, 3 is yours to eliminate. 

This basic formula is across all industries, and does not typically deviate by more than 30% +/-.

Prost

 

 

[Foreshot]

Some info here: http://adiforums.com/topic/10394-discussion-on-sale-of-distillery/

 

[navenjohnson]

32 minutes ago, Southernhighlander said:

.... you should bring in a professional to appraise the business. 

 

Where can such a professional be found that understands this type of business?

[Southernhighlander]

18 minutes ago, navenjohnson said:

Where can such a professional be found that understands this type of business?

I'm not sure who would do that in your area.  As far as someone to appraise your real-estate that should not be a problem.  When I borrowed against my equipment It was used and I found equipment for sale on line that was for sale or that had been sold that was in roughly the same shape as mine and I printed everything out and took it to my bank, however small town banks where everyone knows you, operate differently than large banks.  If you are doing this for a loan the first person that you should talk to is your banker. As far as appraising everything, Roger gave great advice. 

[navenjohnson]

This is not for a loan but thank you for that. 

[Roger]

If you currently  use a CPA, talk to them. Most decent accountants are quite adept at appraising and brokering businesses, and or are able to put you in contact with the appropriate people.

However you can rough it out in about 30 minutes by yourself. 

[navenjohnson]

Thank you Rodger, and everyone else. Roughing it out ourselves is all I'm trying to do so I really appreciate the direction. 

[Skaalvenn]

The brick and mortar business side is fairly easy. Assets, debts, and revenue can all be figured out by an accountant or business broker as others suggested.

The hard part is if the actual brand/trademarks/IP are worth anything. Most are not (despite what the owners believe), but some can valuable if you find the right buyer.

[Rum]

All of the above is true. And there are some excellent online calculators that you can play around with to figure in growth rates, discounted future value, etc, etc.

In my personal experience though, it's all in what a buyer is willing to pay. What is it worth to them. I have been on both sides of that. In the corporate world I was involved in buying a small software company that had only one relatively new product. That product was unique and would help us sell big ticket corporate software for year 2000 testing. It was quicker and easier to pay the owner $3,000,000 for a product with very little sales than to try to develop it on our own. That little product helped our sales staff differentiate and sell many, many times the buyout price in our other products. 

If you can build something that a buyer can make a lot more money on than you can then you can blow away traditional multiples. 

I sold my last business for about 6 times revenues. It had high profit margins, but more importantly, the new buyer was rolling up similar businesses and could make more on it than I could. It was also a sort of halo purchase that helped them to get other owners to sell. 

Most distilleries are too small to get those types of multiples and you will need to stick with traditional methods but it can happen if you get big enough or a larger company wants your product line badly enough. There are some outlier examples like High West that sold for $165,000,000 when they had revenues of $25,000,000. Two big players both wanted them and they sold in an auction format. I have seen others sell for pretty big multiples as well. In every case they were big enough to attract the attention of large players with plenty of cash who could make more from the products than the prior owners could.

You can get big multiples for selling a portion of your business through crowdfunding as well. Just browse some of the successful capital raises on the leading crowdfunding sites to see what I mean. They usually have a good story with some sort of hook but the revenues and profits often don't match the story. They still raise a surprising amount of cash.

[Jedd Haas]

1 hour ago, Rum said:

 There are some outlier examples like High West that sold for $165,000,000 when they had revenues of $25,000,000.

In the case of High West and other major league sales, the metric that is often used is $XXX per case of yearly sales volume. Numbers that I have seen described as "typical" are $200 to $300 per case. However, in the case of High West, it was about 10x this range. According to this article, High West was sold for $2,285 per case. https://www.forbes.com/sites/mergermarket/2017/04/11/consolidation-bubbling-up-in-craft-spirits/

The article also suggests that the "new normal" is $1000 per case, although it appears that this will only apply once you get above a certain level and are achieving major growth.

[Rum]

2 minutes ago, Jedd Haas said:

In the case of High West and other major league sales, the metric that is often used is $XXX per case of yearly sales volume. Numbers that I have seen described as "typical" are $200 to $300 per case. .

Most references I have seen on the per case valuation put it between $300 and $1500. It varies greatly depending on bottle cost etc...