Situation
This multigenerational family business grew hay and sold it throughout the country. The owners had more than 600 acres of land and rented additional land to grow their hay crop to feed horses and cattle.
The owners were working with a trust and estate attorney and a big unknown was the value of the farm. The owners, a husband and wife team, had purchased the farm from his father and now had two children working in the business. Their estate planner encouraged the owners to get a valuation of the farm to finalize their estate plan.
The owners intended to gift shares of the business to their children working in the business and were interested in the children having ‘skin in the game’ by investing in the farm and purchasing shares.
Their estate attorney had worked with Lou Pereira, President of Merrimack Business Appraisers previously and recommended they hire Pereira to develop the valuation of the farm.
Merrimack Business Appraisers’ Approach
Pereira has vast experience in preparing thorough business valuations for a wide variety of needs, including calculating the value of shares of the business to be gifted commonly to family members.
Pereira follows his proven, methodical process to prepare any business valuation as the process does not change based on the industry. While many prospective clients assume a business appraiser needs relevant industry expertise, Pereira reminds them that experience and knowledge is more important than industry expertise. But, given Pereira’s vast background and track record, Pereira has prepared business valuations for agricultural businesses during his career.
Pereira developed the valuation of the hay farm accounting for the variability of earnings in their history given the businesses revenue is highly affected by the weather. Growing hay and successfully harvesting the hay is highly susceptible to the weather, particularly if it rains at highly sensitive times in the process. This can be the case for many agricultural businesses so in such situations, Pereira normalizes the revenue variability by incorporating a longer time frame of revenue streams in the earnings analysis.
Valuation Outcome
Pereira completed the valuation of the hay farm located in Connecticut. This missing element was important for the trust and estate attorney to further the planning, including working with the owners to gift shares of the family farm to the next generation. The valuation of the hay farm also enabled the owners to offer family members the opportunity to buy shares of the business with the share value now determined.
