What’s your farm or ranch really worth? If you’re an owner, chances are you’ve asked yourself that question a time or two, probably wondered about it for a few moments and then moved on to the next task on your list. However, it’s worth taking the time to answer this question, as there are a number of reasons to know and understand the value of your business, whether yours is a working farm or ranch, or any type business associated with agriculture.
Knowing the value of your ag-related business can help provide answers and clarity in the following types of situations:
- You are considering passing some ownership to the family’s next generation. How do the dollars work here?
- Mom and Dad want to semi-retire, sell some stock to the next generation and incorporate that sale into their retirement cash flow. What’s the best way to go about this?
- You are going to offer ownership to someone you want on your team, or conversely, you have a long-time valued owner who wants to retire and cash out their ownership interest. How do you put a dollar value to that amount?
- You sense someone is going to come calling asking if you’re interested in selling, and you don’t really know what the business is worth but would like to know in order to have an informed conversation, even if you’re not particularly interested in selling.
Two of our recent blogs, Is Your Farm or Ranch Your Business – or Your Lifestyle? and A Formula for Transition Success, discussed transition planning and the process to help make that happen successfully. Another component to that process often goes like this: The patriarch and matriarch in the family-owned business are challenged with figuring out how much cash flow they need in retirement and how much of that can come from the resources of the business (this happens in virtually every closely held business, in every industry). Mom and Dad may even consider gifting some of the ownership to the next generation, but they need to know how this “transfer of value for future cash flow” transaction works. Knowing the value of the family-owned farm or ranch can help bring definition to that process by allowing you to put dollars to the “cash flow available” side of the computation.
Items #1 and #2 above fall into the business transition planning purpose, #3 is about management planning for the future and #4 is about a potential sale/purchase arrangement. There are lots of other reasons for knowing the value of your business. You make multiple decisions every day, but none may be more important as having a clear understanding of your farm, ranch or ag business’s value and how the decisions you make impact that value and the future of your business.
If you have questions about the above, or you’d like to determine the value of your business, please contact me at firstname.lastname@example.org or 406.728.1800, or contact your Wipfli relationship executive.