MSU Extension Product Center

Selling a rural food business is challenging. According to the U.S. Chamber of Commerce, it normally takes three years to prepare and accomplish a sale. This challenge is compounded in rural areas where potential buyers are more limited. Consider these details below as you prepare your food business for sale.

What is your business worth?

There are a few means for estimating value, as detailed by the Small Business Administration. One approach is for buyers to concentrate on revenue. The U.S. Chamber of Commerce indicates that businesses for sale are commonly valued at two to three times its current sales. This method establishes the present value of future sales to determine a selling price.

The second approach is for buyers to focus on assets. This includes tangible assets, like inventory and equipment, and intangible assets, such as brand value and relationships with retailers or distributors. Here, the sum of a business’ assets is its value.

A third approach is to focus on markets. In this approach, a buyer would compare a business to similar businesses that have recently been bought. This comparison helps to determine a fair selling price. A buyer can use these methods on their own, or work with a business appraiser, to estimate a realistic selling price.

Who are potential buyers?

Value is in the eye of the beholder. Who a buyer is, and what they value, significantly impacts a business’ selling price. Research from University of Minnesota Extension offers insight into the potential buyers of rural businesses. Their “Rural Business Ownership Transitions Study” found “that 45% of buyers had lived in town their entire life, 12% returned to their hometown to take over a business and 33% were new to town. Of these, 19% picked the location and then found a business to buy; 14% picked the business to buy and then moved to town.” While most rural business sales take place between longtime residents of a town, newcomers are also a viable option.

What do buyers want to see?

Examine the potential sale from the buyer’s perspective. A buyer will first want to know if a business is financially successful. This information is primarily communicated through the income statement, cash flow and balance sheet. Ideally, these financial statements will show increased financial performance over several years. The U.S. Chamber of Commerce hosts a rather comprehensive list of documents to prepare prior to sale.

Another key consideration is if the business will be successful without the founder. It’s hard, according to New Hope Network, for new owners to step into a business without clear policies and procedures. When too much information exists only in the head of the founder, there’s risk that important business information will be lost in the transition. Consider, and prepare for, other questions the buyer may ask, such as why you’re selling the business and if employees are likely to stay after the sale.

Build a team

Preparing a business for sale requires a lot of time, money and expertise. The best route to success is to start early and to form a team. This includes employees internal to the business and external experts such as lawyers, accountants and business counselors. Michigan State University (MSU) Extension Succession & Estate Planning Experts are an excellent, no-cost resource for navigating a business sale.

For all food business topics, consider working with the MSU Product Center. The MSU Product Center is an organization that brings together on-campus expertise in the sectors of food, agriculture, and natural resources to help entrepreneurs define and launch innovative products. Field-based innovation counselors advise entrepreneurs on business planning, regulatory requirements, and product development needs. To access business development assistance, select the request counseling tab on the MSU Product Center website or call 517-432-8750.