How to Increase the Value of Your Winery
If you’re like most of our clients, you’re planning ahead for the sale of your winery. That’s perfect because it gives you time to ease into the transition, and it gives us time to help you increase the value of your winery.
The interesting thing about wineries, and any M&A business transaction for that matter, is that the added value doesn’t necessarily come from a higher sales volume or new products. Quite often, a potential buyer will see one winery as being worth more than another because of how it is run and a lack of red flags.
This is especially true when many wineries have similar climates, soil composition, and capacity. The buyer will look at many factors, not the least of which are your financials. And, as you’ll see, there are ways to add value simply by how you organize and report your financials to a prospective buyer.
Start the Process Early
Ideally, we’ll start working with you a few years before you decide it’s time to sell, but we understand that life circumstances might dictate otherwise.
You’re going to want to know how much your winery is worth, how long it will take to sell, and how you can get the best possible sale terms. Those are all great questions.
However, the process of selling a winery is opaque and complex. That’s why we take a very different approach to selling your winery.
Understanding “Value” From the Buyer’s Perspective
While for obvious reasons, you’ll consider the value of your winery from the perspective of your experience and knowledge, the buyer, the buyer’s legal and accounting team, and the buyer’s bankers are seeing “value” from a different perspective.
The more you can do to make it easy for them to “see the value” of your winery, the easier it will be to sell at a price and with terms that meet your needs. So, what you’re going to do is to change the value of your winery by doing the things that make you look better in the eye of the buyer.
This process isn’t simple or quick, but like losing weight or training for a marathon, it works best if you start small and work your way up.
We get you started with the low hanging fruit – the simple changes that make the winery gain value, obtain better terms, and equally importantly make the winery easier to sell. Basically, you are increasing the liquidity of your winery asset.
Buyers Want Liquidity with Wineries for Sale in California
What often surprises sellers is how the due diligence process, with its multiple consulting firms, accountants, and lawyers, makes a winery the most ILLIQUID asset you own. Most of these legal professionals are paid to find reasons the buyer should NOT buy the winery or should reduce the price.
For that reason our three main goals are to help you gain liquidity, increase the value of your winery, and get better terms on the sale.
Three Main Goals of Our Preliminary Work with You
- Gain Liquidity
- Increase the value (in the eyes of the buyer and his team)
- Get the best terms
We focus on the easiest things first, usually starting with accounting issues, then leases, IT and personnel. We’ll work our way up to more complex issues, such as marketing or distribution.
The accounting issues are fairly cheap and simple fixes as compared, to say expanding your market into new areas — things you would have probably already done if you thought they justified the time, money, energy, and risk. So accounting is typically the first area we review.
You may be thinking that you don’t have any accounting issues, and from the perspective of your day-to-day operations, you’re probably right. But, the numbers needed by a buyer, their investors, and their lenders, are not the same as the numbers you need to run your winery.
For example, seldom do owners have the regular need for twelve trailing month accounting (TTM), but that is how banks typically make loans today. Can you sell a business without TTM? Sure but your accounting department and CPA will have to work their tails off later to compile the figures, and the subsequent delays increase the likelihood that banks will lend less money, meaning you may have to lend money to the buyer.
All these factors may make it worthwhile for you to make the changes now. We will look at all the accounting issues – reviewed versus compiled statements, divisional reporting, inventory reporting, and expense and revenue recognition plus many more. We do the same process on any leases, IT, and personnel and items that are unique to your winery.
We provide you a to-do list that includes a cost benefit analysis so that you can go back and decide which changes, if any, are worth your time and energy. Because we can’t know what’s most important to you, our goal is to bring clarity to the process so that the tough choices you have to make become much easier.
Ideas for Adding Value
- Ensure that financial and corporate records are in good order. Accounting adjustments normally made at year end should be made prior to the sale which as recording a written account of inventory, reclassifying officer compensation and writing off uncollectible accounts receivable. In addition, a corporate seller should have up-to-date minutes of the meetings of the board of directors and a validly elected board of directors.
- Formalize and Document Everything. Formalize all your records and clearly document all transactions. Every time a potential buyer runs across something that’s not documented, he’ll ask, “What else is missing?”
- Eliminate Idiosyncrasies. Do you give special treatment to certain vendors or customers? What will happen when you’re not there?
- Review all leases. Review any real estate leases. Make sure the lease does not expire or require renegotiation at the same time you plan to sell the winery. Plus, analyze the equipment leases and other material contracts from the buyer’s perspective.
- Clarify all Contracts. Make sure the terms and conditions for your contracts are clear, well-documented, and up-to-date, especially if you’re dependent on other growers.
- Remove irrelevant assets. Remove assets which you wish to retain, or which might be objectionable to the buyer, including condominiums or vacation homes, automobiles or other company-owned items for which the seller wishes to retain personal ownership.
- Settle lawsuits. Terminate unfavorable contracts before the your adversaries see the potential sale as added leverage.
- Thoroughly clean and organize the premises. This includes areas the public normally wouldn’t see, such as back office areas.
- Issue Stock Shares. Ensure that all shares of stock required to be issued have been issued and that all verbal agreements regarding future ownership are either honored or terminated in writing
- List your assets. Develop a comprehensive list of all your assets
- List your permits. Create a list of all necessary governmental permits
- Document all loans to or from shareholders and employees
- List all patents. Compile a list of the company’s patents, trademarks and copyrights, especially any proprietary processes you may have developed.
You might want to take some time to codify the company policies and procedures that exist as unwritten rules, or even create a procedure manual that documents exactly how to best run the winery and be sure to include your unspoken, undocumented techniques.
And, in this day and age, you might consider updating your website and IT infrastructure. Many buyers will be younger, and will look at the website more than you may think.
Finally, don’t forget about employees. The loss of key employees during a sale can kill a deal. Key employees may be crucial to the new owner’s success, so it’s important to determine which employees are prepared to stay with the company during and after the transition.
An Important, Final Comment
Most people’s eyes glaze over when they read the above list. That’s why it’s so important to start with the low-hanging fruit, and to include a cost-benefit analysis with the list. Focus first on the items that are easiest, and will get you the most value for your efforts.