A farm is worth money and a farm business could be worth money too. Can you imagine selling your customer list to an eager young farmer and putting $20,000 the bank? Most farm owners have put in hours upon hours to oversee the business. We often call these efforts the “sweat equity” that an owner contributes to the business. Here is the catch…the farm owner must sell something in order to recoup any of that sweat equity. (skip to the Business Valuation for Sale methods guide by Rosalie Wilson)
Many farms are reliant on large amounts of land and equipment and it can take many years of paying down loans to build up equity in the business. The benefit of all those years of hard work and deferred owner draws (cash draw) is that the farm owner owns land that has appreciated (gone up) in value. Accurate appraisal of your land and other assets is an essential step in setting a price on your farm.
Farm business models have evolved in the past 30 years. Many viable and profitable farm businesses have more to sell than land and equipment. Owners can recoup the sweat equity of product development, establishing a customer base and creating an opportunity for a new owner through the process of business valuation and sale. This is an essential step for brand based products or farm businesses with innovative market strategies. Remember, sweat equity doesn’t mean anything unless you make a plan to get paid for it.
Follow this link to download the Business Valuation for Sale methods guide by Rosalie Wilson. It describes 5 key valuation methods: Capitalization rate, comparable analysis valuation, asset based valuation, land use valuation and the honest “real life” valuation.