How to put a fair value on a tree nursery?


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Some usual methods:

X * annual cash flow. X varies by business category.

X * gross profit.

These presumably assume that the facility is rented, and that inventory is small compared to cash flow.

Here's the situation:

80 acres of land, most in pasture, 6 acres in contain tree yard, 1 acre hoarding/potting area, 1 acre in stooling bed, 2 acres in U-cut Christmas trees; 12 acres in bush, 3 acres in yard

2500 sq ft house.

House and land is paid off.

Two tractors, soil mixer, bits and pieces. Paid off.

8 gph well. This number is critical, as it currently limits expansion of the container operation. A new well is 15-20K

700K retail value of inventory.

Gross profit -- after paying employees, before any capital improvements, 80K on sales of about 250K This is not taking any money out for ourselves. Since it's a sole propritarship, there's no point. It's all taxed as if it were ours income.

When we have talked to brokers, they tell us, "We can't find any comparables" and won't list it.
@kevin2006 Sell it as a real estate sale and treat it as if the person can generate income on top of the sale of the land.

The same as if it were a home with a back house that was being used as an AirBNB.

Don't sell the company name...just the assets...and then close the company.
@godisalivevii Most in reply to someone who said 'sell it as an acreage, and the tree farm is icing'

Is a gal who runs a hair salon out of her home working a job, or running a business? How about a consulting engineer? How about a grain farmer? Seems to me that most self employed people ride a line between job and business. And in that sense I'm self employed.

Maybe self employment have to go the 'sell all the pieces for scrap' route.

Interesting distinction you make. I have never seen a business and a job as distinct. Both are ways to put money on the table to eat. I've never had a supervised job. I always knew far more than my boss did, and so as long as things ran smoothly, he didn't care.
@kevin2006 The reason why I said it was to give you the perspective from a professional buyer.

If you went to someone selling a business and said it was $200k for the business bringing in $40k per year and then tell them they would have to work 40 hours per week they would look at it differently than...I have a business to sell you that is $200k with $20k per year and you only have to work 2 hours per month.

There are hierarchies for different kinds of businesses. Sometimes people purchase a franchise and they have to work 50 hours a week. That is a job.

Then another buys a group of stores that are run by a general manager. That is business because the profit derived from the investment doesn't require the business owner to work because the profit in the business includes the compensation for the general manager that runs it.

I'm not trying to insult anyone. I'm just trying to provide some insight into how a buyer might look at a transaction.

I entirely respect business owners that work a ton of hours on thier business. But the challenge tends to be when the business owner tries to sell said business. This is because the owner is oftentimes an above average operator and important to the success of the business. And a person buying it is either taking the risk that they are not as good of an operator (which is probably true) or finding someone to rub the business at a compensation level that allows them to still return a reasonable profit.

I hope that helps communicate my perspective. I think others on here might have a different perspective.
@godisalivevii That makes sense.

But people don't become farmers for rational reasons. Few small farms make a living for the farmer. Most farmers work a different job in the winter.

This makes it a lifestyle decision.

The problem, I think is more general. Recently Lawyer's Nursery, and Bluestem Nursery two well known ones I'm aware of, both closed. Lawyer's was dispersed at auction, with the mailing list being bought by a mail order company. Bluestem just shut down.

At this point I can't name a nursery operation that was sold as working operation.

There are two factors at work here:

A: One is a lifestyle thing: Tree nurseries, like dairy cows, tend to absorb your entire life. (I can take winter holidays, unlike a dairy farmer)

B: One is an expertise thing. The knowledge to run a nursery is by in large not found in books. You find only outlines.

Ok. I have to sell it as a lifestyle. Ideas for where/how to market it for that?
@kevin2006 Well, former customers are a potential way to do that.

Another approach is traditionally employees.

If an employee cannot afford all of the money, you can structure it as a note.

Another way to do it is to find someone who really is down on their luck, wants to have a job, knows the work (or can learn it), and you trust them. Then you keep the operation and 'hire them for rent or a percentage of the profits, or sell them the business for some cash upfront with potential payments going forward.

Lots of ways to do it. But they all require you do do some more work than just 'putting it up for sale.'

You could even turn it into some not for profit and collect a salary off of it and hire people.

Lots of ways to go. Just gotta be creative if you want to maximize the value.

It becomes especially challenged during a pandemic.
@godisalivevii Good ideas all. The only reason to sell is that my wife wants to retire to the coast. And we're land rich and money poor. We have to get at least 500K out of the farm to afford to buy a place on the coast -- and even that is a bottom end house. Right now our pension income is about 35K/year. Our farm income was about 60K this year. Once we sell, our overall income drops to the point that bank loan managers laugh.

When we did have it on the market, part of the package was that I would provide 1 week a month on site to teach the new owners all the practical skills, and up to 3 hours a week on the phone the rest of the time for a year. We had terms for extending this.

I also provided in outline form about 20 projects for expansion.
@kevin2006 You probably should include your goal in the post at the top.

If you have a goal, work towards achieving that.

Right now is near the height of real estate prices for a while, in my opinion.

I think farmland will continue to be popular because of global trends.

But something you can eat rather than stuff to make your home or business look nice.

Maybe rather than sell immediately, start planning how you can adjust to either build an income off of the land. Position it for a good sale. Or wait until other markets get less hot.

Rather than focusing on one outcome, strategize multiple and then you might find one that fits.
@raymanuel Sure. I understand that.

But OP should understand the implications of the liability side.

The business brokers obviously see something they don't like. Either it's too small or structured in an odd way. Or whatever.

I just wanted to point out the liability side as well.

And a name probably not worth much unless it is sold together with the land. (While it is possible to be worth something on a standalone basis, I would be hard pressed to imagine them having an amazing online business that would make the name worth more.)
@kevin2006 I won’t comment on the valuation, but my grandfather owned a small tree nursery (5acres). When he passed, we sold the property. First, we auctioned off the trees and sold as much of the equipment as possible. We then sold the property to a developer who built a subdivision on the property.

As for the well limitation, my grandfather had a rather ingenious solution, he built a swimming pool and used that as a water reservoir and used the pool pump to push water throughout the nursery when he couldn’t rely on rain water. He got 4 hours of watering for the entire nursery. He would then fill up the pool overnight and he could water for another 4 hours the following day. Similar could be obtained with large IBC containers or a water tower.
@mgrehab Yes. The auction is one way. This results in about 1/2 of wholesale value for trees, somewhat above that for equipment. It's also a huge amount of work to prep. It also means finding an auctioneer who has experience in selling tree farms.

I would rather sell it as an operating farm.

As to water: Pumping into a tank makes no difference. All that In summer on a warm day I'm pumping 24 hours a day. I use a bunch of timers.
@kevin2006 Are the realtors or business brokers not listing it because they can't justify your expected price?

Lot's of properties don't have easy comparables but still sell all the time.i know I have sold some.

Have you contacted a rural real estate agent or a farm specialist, particularly one with tree farm experience. They would be familiar with many of the somewhat unique factors you mention?

What are you located approximately?
@holmesjrh I had it listed with a farm oriented real estate agent for a year. Accepted her recommendation for price. We got 3 inquiries. One changed their mind (She wanted it, he didn't) The other two, from the types of questions they asked were looking for a money laundering possibilities.

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