How to Sell an Agricultural Business for Maximum Value
How to Sell an Agricultural Business for Maximum Value
Operating an agricultural business is challenging, and the pandemic has disrupted the supply chain for both farm supplies and crop sales. Modern Farmer provides some recent statistics on farming:
The average age of an American farmer is 58 years old.
41 percent of small farmers turn a profit each year.
The average size of a farm is 444 acres.
If you’re considering a business sale, the first step is to increase the value of your business.
Increasing your Business Value
When you increase your business value, you can sell your business for a higher price, or continue to operate and produce a higher profit. Use these strategies to enhance business value:
Diversify Crop Production
Valuable businesses sell a variety of products and services, which reduces the impact of a sales decline in a single product. The same strategy applies to farming. Farmers that produce several types of crops or different types of livestock are more valuable.
If a large supply forces down corn prices, for example, a farm that also produces wheat and raises cattle can drive income from other sources.
You can maximize your use of land by raising crops that are planted at different times during the year. Do some research to determine what alternative crops you can grow, and the current demand. If a crop harvested in the fall has a price decline, you can generate additional revenue from a crop that is sold in the spring.
Organic farming is increasing rapidly, as consumers preferences move toward organic foods. Global organic farming is expected to grow to nearly $130 million by 2026, and you can take steps to meet the USDA’s organic farming requirements.
Perform More Steps in the Supply Chain
There are multiple steps that must be completed to get a crop from the field and to the end customer. You can add income sources by performing additional tasks in the supply chain. Some crops must be dried or cooled, and all products need to be packaged and shipped.
Here are some other services you can add to diversify your income sources:
Restaurant on the farm premises
Farm store, or a stall at a local farmers market
Winery or wedding venue
A farmer may generate more income from these other services than from producing crops.
Apply Technology to the Business
You can increase efficiency and lower expenses by using technology in your farming operation. Farmers have to apply seeds, water, fertilizer, and pesticides to grow crops, and you can use technology to apply the correct amounts at the right time.
Today’s farmers use sensors and other devices in the field to measure soil moisture and other metrics, in order to make better decisions. In addition, drones are a useful tool for surveying land, spraying, and for irrigation management. Utilize technology to avoid waste and to increase crop yields.
Build Contract Relationships
Businesses are easier to manage when the owner can reduce uncertainty, and contracts provide more certainty. Increase the value of your farm by setting up contracts with your feed, fertilizer, and pesticides suppliers, and sign contracts with businesses that can buy your crop output.
When you put contracts in place, your costs are more certain, and crop revenue is more predictable.
Once you put these strategies in place, carefully monitor your results. Farmers analyze yield per acre and profitability per field to assess farm performance. You’ll also need to supply these metrics to a potential buyer.
Selling your farm requires a big investment in time and effort, and you need to stay focused on managing your farm during the sale process. Find an experienced business broker to serve as a trusted advisor throughout the sale process.
How a Business Broker Adds Value
Your farm is a complex business that is difficult to manage, and you may not have time to invest in a business sale. Selling your farm requires business knowledge and negotiation skills, and you need the help of a third party who has the skill set. Business brokers have the skills to help you close a successful farm sale.
Finding Qualified Buyers
Business brokers have a network of investors, attorneys, and accountants who are involved in business sales, and they can use their network to find buyers for your business. Once a potential buyer is identified, the broker will work to verify that the buyer has the financial resources to make an offer.
Managing Due Diligence
Due diligence is a time-consuming process, and if the process isn’t managed properly, negotiations can stall. Sellers are often frustrated when the buyer requests additional documentation.
Your broker will manage the process and keep the document review process on track. When additional requests come in, the broker will determine if the requests are reasonable, and help you provide the information.
Negotiating the Sale Price
A business valuation serves as a starting point for negotiating a sale price.
Raincatcher’s business brokers can help you obtain a certified business valuation, which is prepared using the highest valuation standards. These valuations are unbiased, and reflect your company’s true worth.
Brokers use other metrics and industry knowledge to provide additional support for the proposed sale price. They analyze sales of similar companies, consider industry trends, and understand the unique factors related to your business.
Your broker will review all of the closing documents for the sale, along with your attorney. Ask a broker to serve as your trusted advisor.
Sell Your Business with Confidence
Selling a business can be an emotional process, particularly if your farming operation has been in your family for generations. Find a qualified business broker today to help guide you through the sale process, so you can close a successful sale and have peace of mind.
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