Geoff McIntyre
On Tuesday, June 16th, MNP hosted their 6th Annual Workshop for the B.C. Wine Industry. Winery owners and key stakeholders gathered at the Penticton Lakeside Resort for the opportunity to learn and share valuable insights to maximize their winery business. Hosted by MNP Partner and Business Advisor to the BC Wine Industry, Geoff McIntyre, this year's theme was Building Value in your Winery Business for a Successful Transition. Many business owners fail to plan for the future because they find it overwhelming and don't know where to start. Our speakers at this interactive presentation demonstrated how having your end goal in mind today, helps build value in your business to prepare winery owners for a successful succession.
This year's keynote speaker was Stuart Scott - author of Riding the Tiger, How to Create a Successful Winery During Tough Times and former owner of Camas Prairie Winery, 2007 Idaho Winery of the Year. Stuart spent 29 years in the wine business starting from in his garage and building value along the way before successfully transitioning his business in 2011.
A summary of Stuart's presentation and lessons from the wine industry are below. Even though Camas Prairie was a smaller operation and the ultimate sale price was not huge, the return on Stuart’s initial investment of $18,000 is very impressive. Remember, Stuart was not selling land and buildings so most of this profit is reflective of the value he built over time. The lessons he has to share are very relevant to any size winery.
“In 2011, when I sold my winery I put down on paper what I had learned. I believe that human knowledge should be a cumulative affair that allows us to progress without repeating the mistakes of others. I had enough winemaking skill to win a commercial award in my rookie year as a winemaker. But I didn’t start out with the skills necessary to be a success in the wine business.
Riding the Tiger
Before becoming a commercial wine maker I had been the owner of a small vineyard, 2 acres, and made wine as a hobby. Between the vineyard and winery businesses among the things I learned were: grapes are easier to grow, and wine is easier to make, than either is to sell. Growing good grapes or making good wine does not guarantee success in business. And, if you want to know if your fruit or wine is any good, don’t ask your Mom, ask potential customers.
While team teaching entrepreneurship at the University of Idaho, I learned about the phases of business: planning, start up, maturing and harvesting. The focus of my presentation for MNP business advisors is how I prepared my business for sale, set my asking price, and assisted potential buyers and lenders to put the deal together. I had a property that could have been sold with the business, but I chose sell the business as an entity while keeping the property for a later separate sale. My remarks here are just about harvesting the business.
The keys to my success in the wine business were: having a price-worthy product, providing both product and service to all my wholesale and retail customers, having continuity of supply so my wines were of consistent quality and always available. By having all three components, I created a “Brand.” The Brand had intangible value, sometimes called Blue Sky, and it gave me a marketable business.
In setting up the harvest of the business, I used lessons learned about the appeal of franchise opportunities for the potential buyer. Franchises offer a buyer help and guidance in settling up and operating a business. This helps take the fear out of buying. I copied the appeal of a franchise by having in place: a series of written training and operations manuals. I had lists of all my wholesale customers that included their point of contact, a purchase and contact history. A list of all my suppliers, with their point of contact: for grapes, packaging materials and equipment. There was a similar list for consultant services such as laboratory analysis, liquor legal, graphic design and printing. There was in place an ongoing marketing program that a buyer could keep or change. Finally, I included in my offering 60 days of full-time in-house transitional services and an offer, for purchase, of one-year of inexpensive consultant services. Together, these things mimicked the most appealing aspects of a franchise: training, support and replacing the key man.
Anticipating the need to help a buyer and their prospective lender, I had an itemized list of all my equipment and trade fixtures. The list included documentation from vendors as to the current replacement cost of each item. Five years of tax returns were available for review and included proof that I had been paying myself a salary for the previous 5 years.
Using the so-called Rule of Five, that a purchase price should not exceed the anticipated profits of 5 years, I set a realistic asking price based on three elements. The price was based on valuing my real property at 50% of current replacement cost. My average inventory was valued at my production cost, so that all potential profit from sales would accrue to the buyer. The third component was the value of the brand or the ‘Blue Sky’. I set this value based on the difference between the Rule of Five suggested value and the equipment and inventory values.
Remember! If you want to know if your wine is any good, don’t ask your Mom. If you want to know the value of your brand, don’t ask Mom. Find the fair market value and see how much profit this realistic, saleable price will allow you to make. In the end, what we have is only worth what someone else is willing to pay.
Finally, I created a written set of purchase options. The business could be purchased with or without the liquid inventory. The buyer could become my tenant, keeping the business in place, or move the business if they had their own property. A proposed lease was already available for review. The buyer could rent all or part of my space, because different product models have different the space needs. Last, was my offer of future consultant services with the first year being at a bargain rate.
In summary I had information in place for the buyer and lender. There were purchase options for the buyer, an existing customer base of 50 wholesale accounts and an established retail location and customer base. This was how I grew from an $18,000 start-up in my garage to a $250,000 business sale that kept a valuable property as an on-going source of rental income.”
Not many North American winery owners have yet been able to build their business from the ground up and execute a successful sale to a third party. Stuart Scott’s experience with Camas Prairie Winery provides valuable insight into how this can be done.■
For further information or to book a free succession planning consultation, contact Geoff McIntyre, 250-979-2574 or geoff.mcintyre@mnp.ca