Estimating Value/Cost of client base or profit base for brewery sale?

[Zoob]

Hello there, I am in early negotiations with a brewery that is for sale. The operation is being offered in three basic parts : The 15 Bbl brew house hot and cold side, the location and lease transfer, and the most important parameter the existing sales and local client base for tap room. If the sale goes through the original brewery is retaining their name and basically moving locations for expansion.

My question is that the current owner has provided me local/ tap house sales figures, and has basically valued the current clientele and sales base at just over the 1/2 cost of the 15 BBl brew house which is roughly 300K. I am treading lightly here due to an NDA.

If the current sales figures hold and there is little or no change due to new Business name and owner, is 400K+ a good value for the sales base?

If not how would one re-evaluated this cost and come to a better sales price? What are the parameters or metrics to use to evaluate the current sales base?

Thanks in advance.
Zoob

[mashpaddled]

It's hard to know whether that is a reasonable value without knowing revenue and how sales were valued by the owner. It's sort of like asking whether $20,000 is a good price for a car without knowing what kind of car or its condition.

I would be particularly careful about how the sales were valued given that the sale is being negotiated in three separately valued chunks. If the owner is valuing sales on a multiplier valuation and adding asset value on top of that then the brewery is likely priced at an absurd premium.

I would also be concerned about a valuation that gives full credit to current sales without factoring in the other aspects you will lose in the business. You are not brewing the same beers so the existing clientele may not be your long time customers. You won't have their marketing base, intellectual property, goodwill, etc. that helps drive their sales through brand loyalty beyond walk-in customers due to location. While many of their brand loyal customers may give you a try because they like the location and liked the beers, you probably won't retain all of them. The more disparity between your beers and the current owner's beers means less probability that you will retain their brand loyal customers.

You really should be working with an accountant with experience valuing businesses and/or a business broker. A $700k+ business isn't something you should try to value with anonymous internet advice.

[Zoob]

Thanks

Mash paddle
Thanks for the tips
I should be receiving their books shortly.

I would like to keep in touch for when I have such figures and a better knowledge of their base sales

To follow up, assuming I would loose clientele, what would a good starting discount of sales be?
That is to say should I start with the notion that I may loose about 20% in sales do to new branding and such?

Also you make mention of aspect I will also loose. What are some examples?
Thx
Zoob

[nateo]

Add up all the tangible assets and liabilities of the business. The used equipment, building, lease, etc. Anything over that amount that is the goodwill, but it's not clear to me why there is any goodwill when you won't get his recipes, branding etc.

I would look at your BATNA before you decide if it's a good deal. How much would it cost to buy and install a similar system, renovate a building, etc.

I wouldn't plan on retaining ANY sales. it doesn't matter where/how that guy came up with his numbers, as long as the bottom line is better than your BATNA then the deal might be worth it. without knowing more, I would guess your BATNA is pretty good, but his is pretty bad, unless he has the ability and desire to keep running both breweries, or there are a lot of other interested parties.