I would think one of the main points of evaluating the business is the simple yet effective manner of doing an inventory of what equipment comes with the business, how many hives, the hive hardware and condition that it's in, evaluation of the hives strenth, see if there are any records of last queening, how often has he/she had problems with AFB, and what remediation method was used. Then sit down with your data in hand and the price for the business, and do the paperwork/research as to what everything would cost new and devaluate for age. See if his number comes in close , if not make an offer of what it's really worth. Remember this, past honey production does not mean anything in this evaluation as it is subject to change each and every year. Go only on what is a given such as pollination contracts and the price for the hardware.
Putting a value on an existing commercial business
I have an opportunity to purchase a small commercial operation. Having been a large hobbyist/small sideliner up until now, I'm not sure how to go about evaluating the operation and putting a price on it to see if what they're asking is fair.
Can anyone point me in the right direction here?
Thanks
Can anyone point me in the right direction here?
Thanks
1 - 13 of 13 Posts
You aren't going to know what kind of foulbrood history the business had/has until you inspect every weak colony on the spread. The shape of the equipment, the same. Reciepts from honey sales and schedule C's for about 5 years to verify income.
The most important thing of all is the quality, number and security of the beekeeping locations.
Reason for sale is important too. Good luck. PM Roland and ask him the same question.
The most important thing of all is the quality, number and security of the beekeeping locations.
Reason for sale is important too. Good luck. PM Roland and ask him the same question.
For a honey business it's all about asset valuation. Get out that calculator, only value the assets worth something to you. All the other "stuff" can be valued at zero and can go with the package. Many sellers try to squeak value from bits and pieces, and if you ask me, that's what auction sales are for.
I have not bought a bee business before, but have purchased others. A general rule among our attorney's and agents was never to pay more than 2x annual profit/cash flow. 3x maybe if there are other militating factors. To me in using this method, it cannot take into account cash transactions as there is nothing to verify. We did exhaustive due diligences on the businesses we bought and we always had a surprise afterward.
Great AdviceFor a honey business it's all about asset valuation. Get out that calculator, only value the assets worth something to you. All the other "stuff" can be valued at zero and can go with the package. Many sellers try to squeak value from bits and pieces, and if you ask me, that's what auction sales are for.
In my 9-5 job we routinely value businesses. So that's something that is fairly normal for me. I can say that I don't do that for agriculture businesses (including bee businesses and apicultural industries), typically because there isn't a "going concern" value to them. With most farmers, the value is in the land and the assets (some equipment, but usually not much there). So rather than sell the farm, they just sell the land on the open market. Some buy it to farm (rare) but most buy it as investment or to flip it, or to develop it.
But moving more to businesses in general, there are two main views when purchasing a business: asset valuation and income valuation.
Asset valuation
It's a fairly simple evaluation. Just add up what it would cost you to purchase all the equipment somewhere else. That of course doesn't mean two people will come up with the same number. Some will value the whole equipment based on "replacement" value. Others value it based on "liquidation" value (auction sales). Some will value it based on replacement value, but discount the price based on the wear (usually considered market value). Some will try to increase the value slightly, based on a "whole business going concern" value, but at the same time others will decrease the value a little based on an ease factor (even if you did sell all of the equipment at market value, piece by piece, your costs to do so, including time, would greatly increase). Generally speaking though, market value is used most often.
Income valuation
This is harder in the bee industry, but it usually takes GROSS income projections for the next year (usually based on the past three to five years of growth) and puts a multiplier on it. The multiplier is different from industry to industry. If it's a stable industry, and you are getting hard assets for it (real estate, sellable equipment), a multiplier of 10-15 isn't unheard of. If the industry is unstable, you are getting mostly inventory (liquid assets), and the business would require considerable labor and efforts on your side, a 1-3 multiplier isn't out of the question.
Here, I think it would depend on what you are purchasing. Are you just getting the hives? Any automobiles with it? Any bottling equipment? Outyard locations? Are you getting purchaser lists with it? Pollination contracts? The more of these things you get, the greater you should be moving to an income valuation (in my opinion). The fewer, the better off you are using an asset valuation.
Keep in mind though, the one equation that is missing in all of this is the NET income. If you put a multiplier on GROSS income, but your expenses equal or exceed your income, your NET income may be little or nothing. Keep that in mind when valuing the asset. Good example, say the company is anticipating $225,000 gross next year, and you put a 1.5 multiplier on it, meaning it's sold for $337,500. Well if next year's expenses are anticipated to be $200,000, you only netted $25,000. It would take you 13.5 years to "pay it off". That's 13.5 years of building sweat equity before you turn around to zero. But, if your yearly expenses were $150,000, you'll end up "paying it off" in 4.5 years. All not including interest, if you get a loan.
But moving more to businesses in general, there are two main views when purchasing a business: asset valuation and income valuation.
Asset valuation
It's a fairly simple evaluation. Just add up what it would cost you to purchase all the equipment somewhere else. That of course doesn't mean two people will come up with the same number. Some will value the whole equipment based on "replacement" value. Others value it based on "liquidation" value (auction sales). Some will value it based on replacement value, but discount the price based on the wear (usually considered market value). Some will try to increase the value slightly, based on a "whole business going concern" value, but at the same time others will decrease the value a little based on an ease factor (even if you did sell all of the equipment at market value, piece by piece, your costs to do so, including time, would greatly increase). Generally speaking though, market value is used most often.
Income valuation
This is harder in the bee industry, but it usually takes GROSS income projections for the next year (usually based on the past three to five years of growth) and puts a multiplier on it. The multiplier is different from industry to industry. If it's a stable industry, and you are getting hard assets for it (real estate, sellable equipment), a multiplier of 10-15 isn't unheard of. If the industry is unstable, you are getting mostly inventory (liquid assets), and the business would require considerable labor and efforts on your side, a 1-3 multiplier isn't out of the question.
Here, I think it would depend on what you are purchasing. Are you just getting the hives? Any automobiles with it? Any bottling equipment? Outyard locations? Are you getting purchaser lists with it? Pollination contracts? The more of these things you get, the greater you should be moving to an income valuation (in my opinion). The fewer, the better off you are using an asset valuation.
Keep in mind though, the one equation that is missing in all of this is the NET income. If you put a multiplier on GROSS income, but your expenses equal or exceed your income, your NET income may be little or nothing. Keep that in mind when valuing the asset. Good example, say the company is anticipating $225,000 gross next year, and you put a 1.5 multiplier on it, meaning it's sold for $337,500. Well if next year's expenses are anticipated to be $200,000, you only netted $25,000. It would take you 13.5 years to "pay it off". That's 13.5 years of building sweat equity before you turn around to zero. But, if your yearly expenses were $150,000, you'll end up "paying it off" in 4.5 years. All not including interest, if you get a loan.
Make a list of all the stuff he has colonies, trucks trailers, forklifts extractors, pumps etc... buildings, inventory of glass, etc Multiply by how many of each he has and add it all up.
Look at his last seasons tax bills. Project whether or not you have a chance of paying the bank off, earning something for yourself and setting something aside to be able to replace/fix the leaky roof, the bald tires, half of the rotten supers etc... If it does not look like you can earn money with average crop at average price then somehow you need to get the business for a better price. If you need best price and best crop just to make bank payment and minimum wage for yourself renegotiate. If an average crop with average pricing, you can pay yourself a wage to live on and pay the banker then the price is fair. Remember one day you will be in a position where you too will want to sell.
If you can get the seller to be your banker, great for you, not so great for him, but it can be arranged.
Jean-Marc
Look at his last seasons tax bills. Project whether or not you have a chance of paying the bank off, earning something for yourself and setting something aside to be able to replace/fix the leaky roof, the bald tires, half of the rotten supers etc... If it does not look like you can earn money with average crop at average price then somehow you need to get the business for a better price. If you need best price and best crop just to make bank payment and minimum wage for yourself renegotiate. If an average crop with average pricing, you can pay yourself a wage to live on and pay the banker then the price is fair. Remember one day you will be in a position where you too will want to sell.
If you can get the seller to be your banker, great for you, not so great for him, but it can be arranged.
Jean-Marc
Specialkayme provides some valuable insight into pricing a business.In my 9-5 job we routinely value businesses.
I've been asked to put an asking price on businesses as a Realtor and it's not as easy as folks wish. I suggest that in addition to what has already been offered that you consider what alternatives are available and at what price. Can you come close to duplicating what they have for less money? Or, can you get a better return in another investment?
I caution people against buying themselves nothing more than a mediocre paying job. It typically isn't worth it, even if it's something you enjoy doing.
:applause: :applause:Specialkayme provides some valuable insight into pricing a business.
I've been asked to put an asking price on businesses as a Realtor and it's not as easy as folks wish. I suggest that in addition to what has already been offered that you consider what alternatives are available and at what price. Can you come close to duplicating what they have for less money? Or, can you get a better return in another investment?
I caution people against buying themselves nothing more than a mediocre paying job. It typically isn't worth it, even if it's something you enjoy doing.
Farming is not a 9 to 5 job five days a week.
BEE HAPPY Jim 134
Got that one right.... Anyone who says beekeeping isn't a 25 hour a day job when "your da boss" has never sat in the seat of opportunity which it revolves around..[/COLOR]
:applause: :applause:
Farming is not a 9 to 5 job five days a week.
BEE HAPPY Jim 134
Must have been a mistake, you meant 5-9.[/COLOR]
Farming is not a 9 to 5 job.
BEE HAPPY Jim 134
1 - 13 of 13 Posts
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