Farm Based Cidery Start-up in US (property investment question)

[Nathan Shackelford]

A local cider mill is selling. They have about 5 acres of orchard (with trees that probably require replanting), with 15 acres of outbuildings and woods. The pressing equipment is already in place, and there is a cool room for apple storage and fermentation. They have health dept. clearance and a home on the property. Can this be converted to a profitable cider company if the cost of the property is 900K? Parts of this situation look ideal, but the overall cost of the property seems like a drag on a business that needs every bit of leverage that one can get.
I know there are too many variables to calculate... but there may be some red flags that immediately say - no. Any thoughts on possibilities vs. impossibilities.

[Richard Anderson]

I would try to separate the business value from the property value reflected in the selling price, i.e. what is the fair market value of the property? Keep in mind the property will provide materials(sales of apples) and facilities(rent) to the business. On the other hand the business needs generate sufficient income to cover these costs as well as all the other costs associated with establishing and running the business of your dreams.

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[Dick Dunn]

Nathan - location, location, location! In this case: Is the operation
close enough to traffic and population that you could get on-site sales
and/or ease of transport to local outlets with sufficient traffic?

Also, thinking about "red flags": Why are they selling?

--
Dick Dunn rc...@talisman.com Hygiene, Colorado USA

[Old Spot]

Have you completed a business plan for a cider business in general?  P/L, cash flow, marketing and distribution plan?  If you have this well sorted for say, 0 to 5 years, you can apply various cost, investment, and debt scenarios against it.  If a large part of the 900K is your home, that seems a good start.

[Cornelius Traas]

That seems like a high price, but it would depend on many factors:
Capacity and condition of cider equipment, cold rooms etc.
Potential of woodland for conversion to orchard.
Size and condition of home.
Turnover and profitability of the existing business.
Amount you need to borrow vs. how much capital you have idle and ready to invest.
Scalability (are you in an area where there is lots of potential to expand)?

Cornelius Traas

The Apple Farm,
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Co. Tipperary.

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[Dick Dunn]

Among other things, Con mentioned:

> Potential of woodland for conversion to orchard.

When you think about that, do keep in mind that--depending on what you mean
by "woods"--it can be a lot of work (and/or expense) to clear it out and
prep it for orchard. If there are many large, mature trees it's a big deal
to get enough of the root systems out.

[Peter Ellis]

On 21/10/2016 06:16, Dick Dunn wrote:

Among other things, Con mentioned:

> Potential of woodland for conversion to orchard.

When you think about that, do keep in mind that--depending on what you mean
by "woods"--it can be a lot of work (and/or expense) to clear it out and
prep it for orchard.  If there are many large, mature trees it's a big deal
to get enough of the root systems out.

I don't know how it works there, but here there are people who will clear woodland for free, provided the trees are reasonably mature and they can keep the wood that they cut down, in order to sell it. After cutting down the trees they full up with huge agricultural tractors mounting massive flails that reduce what remains to wood chips.
Cheers

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Peter Ellis

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[Nathan Shackelford]

I would try to separate the business value from the property value reflected in the selling price, i.e. what is the fair market value of the property?  Keep in mind the property will provide materials(sales of apples) and facilities(rent) to the business. On the other hand the business needs generate sufficient income to cover these costs as well as all the other costs associated with establishing and running the business of your dreams.
 

Good thoughts, Riochard. These are my ultimate quesitons, along with whether I have time/resources to take care of a property this size. 

[Nathan Shackelford]

Nathan - location, location, location!  In this case:  Is the operation
close enough to traffic and population that you could get on-site sales
and/or ease of transport to local outlets with sufficient traffic?

Also, thinking about "red flags":  Why are they selling?

Thanks for your insights, Dick. In this case, the farm is 1 hour from Chicago and only a minute off a highway that brings a lot of traffic along the suburban/rural corridor. I think it's a pretty good location for distributing to the city or suburban taprooms.

Why are they selling... they have run a family sweet cider business for 20+ years. The gentleman wants to retire and move off the farm, and his children aren't able to buy it  and are getting into other careers. They are a well known and loved cider mill. If I were to take it over, selling sweet cider and maintaining connections with the community would be a goal as well as a leg-up with getting more people to taste fermented cider.  I got to know the family and mill by taking my apples for custom pressing for the past 4 years, and before that I bought their juice.

I know how limited sweet cider is on income, so I wonder if a year round hard cider business could make this property more than pay for itself. I think the family was just breaking even on it, and providing some side-money for family members who helped run it. I don't think this property has ever really been more than a hobby farm.

[Nathan Shackelford]

Have you completed a business plan for a cider business in general?  P/L, cash flow, marketing and distribution plan?  If you have this well sorted for say, 0 to 5 years, you can apply various cost, investment, and debt scenarios against it.  If a large part of the 900K is your home, that seems a good start.

Old Spot, I'm working on that. I am currently looking at two different scenarios and trying to decide which way to develop a business plan. One is farm based, and the other is an urban cidery model. To be honest, I'd rather spend my time and sweat on a farm. I like to grow things and have some space... but, if it's not feasible, I'll just ferment things. 

That seems like a high price, but it would depend on many factors:
Capacity and condition of cider equipment, cold rooms etc.

Potential of woodland for conversion to orchard.

Size and condition of home.
Turnover and profitability of the existing business.
Amount you need to borrow vs. how much capital you have idle and ready to invest.
Scalability (are you in an area where there is lots of potential to expand)?

 Con Traas, Dick and istracpsboss,
Good list of factors to consider. I'm sure investors and banks will want to know the same things.
I think the woods are fairly dense. My colleagues at my day-job said that I should just be able to call people into get the wood, but I doubt it's that easy. We are not in a logging area, and I don't know what the value of wood would warrant the removal. I was worried about the root systems and how the neighbors would view bulldozing the woods. I know it's up the the property owner, but I wouldn't want to make enemies right away.

[Jeff Harner]

You may also want to look through the USDA's NASS statistics on the value of agricultural land by state to get a sense of the price per acre. It's not going to give you an exact number for that property, but by comparing those numbers to other properties in the area you should be able to get a sense of the fair market value.

[Nathan Shackelford]

You may also want to look through the USDA's NASS statistics on the value of agricultural land by state to get a sense of the price per acre. It's not going to give you an exact number for that property, but by comparing those numbers to other properties in the area you should be able to get a sense of the fair market value.

Good info, I looked it up. I had no idea that farmland prices were tracked that way.