It is critical to complete a thorough situational analysis when buying or selling a craft brewery. Unless you are “simply” (and it’s never simple) buying used brewery equipment, you need to understand where the brewery has been, where it is and where it can go.
Typically, you should request 5 years of historical financials and income tax returns. You should recast these to determine the discretionary cash flow to the owner (“DCFO”) for each of the 5 years. The FIRST thing to realize is that your financials incorrectly state what you earn in the business. The IRS allows you to deduct expenses like depreciation, amortization, interest, owners’ salaries, benefits and other perqs. Non-recurring or non-market wages, expenses need to be determined and adjusted.
Similarly, inventory, fixtures, furniture, equipment and vehicles are typically understated on the balance sheet. The IRS allows you to depreciate these but you can increase their values typically to their used fair market values. You need to recast the balance sheet and determine values of raw material, packaging, etc inventory at cost, WIP (Work in Process) at cost + a percent of margin, finished goods at cost + a percent of margin, used fair market value of the brewery equipment, other furniture/fixtures/equipment and vehicles, etc.
Other factors include in selling a craft brewery:
-The lease needs to be assessed for fair market rate, term, renewals, ability to be assumed, personal guaranty ….
-Who will be brewing? Is there an existing employee brewer, assistant brewer, etc? Is the head brewer actually the business founder (who will be leaving upon selling their craft brewery)
-Will this be an asset-purchase or legal entity purchase (eg membership interest purchase of an LLC). There are legal, purchase price and operating expense implications to each approach
-Regulatory compliance history – has the brewery broken local, state, federal laws
-Will a bank lend money on the purchase or sale?
-and many other considerations
You should find a reliable, craft brewery industry specific checklist to help guide you. You might consider finding a craft brewery experienced firm that can provide an independent, third party valuation of the craft brewery business. See a typical blind marketing profile used in an actual selling of a craft brewery.
Feel free to email or call me if you have further questions. The same considerations apply if you are considering preparing your craft brewery for sale.
Jeff Adam, PE, BCB, MCBC, CBB, FRC
During 3 decades of M&A service, Jeff Adam has successfully completed the sale of over 700 businesses and advised or completed 1,000’s of business valuations and exit plans. An entrepreneur in his own right, Jeff has started and grown 12 companies in fields including international finance, B2B services, business valuation, construction, screen printing, Mergers & Acquisitions, engineering, and manufacturing. Jeff has donated his time as a distinguished speaker at numerous national & international conferences since 1977 covering topics such as environmental services, engineering, media, craft breweries, exit planning, business valuation, charitable giving, management, business brokerage and M&A fields.
Jeff is President of Adam Noble Group, LLC, a national M&A Advisory firm, professionally valuing and confidentially selling profitable businesses owned by exit-motivated business owners to qualified strategic, corporate, private equity, partners, management, and first-time buyers. Jeff establishes rapport, builds trust, and educates business owners in the steps to meet their goals as they prepare and achieve the discreet, confidential exit of their business. Jeff exclusively represents sellers of $1M-25M value enterprises and endeavors to transfer their businesses to qualified, capable acquirers who will build upon the seller’s vision, goals, culture, and history. Jeff maintains lifelong repeat and referral relationships with sellers, their acquirers, and service providers.
Adam Noble Group has multiple M&A and business broker specialties: Manufacturing, Defense Industry, Oilfield services, Construction trades, Craft Breweries, Partnership Buyouts, Manufacturing, Service, and Wholesale Distributors.
Our M&A advisors and business brokers are all multi-industry entrepreneurs who have successfully exited their own companies. Jeff has walked in your shoes! Jeff wants to put the BIGGEST CHECK of your life in your pocket! Please contact Jeff, and he will confidentially answer all your questions.