How to Value a Brewery
Businesses in the brewing industry produce various alcoholic beverages such as beer and malt liquor. According to IBIS World, there are approximately 9,000 breweries across the United States. In recent years, the brewing industry has generated over $3 billion dollars. Moving forward, we can expect healthy revenue and profit growth in the industry. This is ideal if you are looking to buy, grow, or sell a brewery. Whether you are entering or exiting the brewery industry, it is helpful to understand how to value a brewery.
The most effective way to learn about valuing a brewery is to obtain a business appraisal. During a business appraisal, a valuation expert will highlight the risks and opportunities of your brewery. Additionally, you will learn the fair market value of a brewery. This information can help you take the next steps in maximizing the value of a brewery.
As a professional business appraiser, Peak Business Valuation works with breweries throughout the country. As such, we are happy to provide you with a business appraisal for a brewery. Peak can also discuss any questions you may have on how to value a brewery. Schedule your free consultation by clicking the following link!
How to Value a Brewery
There are several approaches to valuing a brewery. Generally, business appraisers at Peak Business Valuation utilize the market approach and/or the income approach. Both methods are effective, however, each uses a different basis of valuation. As such, a valuation analyst will determine the most applicable approach during a business appraisal for a brewery. This may include using a combination of valuation approaches.
Valuing a Brewery Using the Market Approach
The market approach is one of the most common business valuation methods. To understand the market approach, consider the real estate appraisal process. When valuing a property, real estate appraisers look at similar properties that recently sold in the area. This helps them calculate a fair value for the property. Similarly, the market approach requires business appraisers to consider similar businesses that recently sold when valuing a brewery. If the brewery is privately owned, the valuation expert will gather information from private transaction databases.
Multiples for a Brewery
Valuation multiples are a defining characteristic of the market approach. These are financial ratios that measure a brewery’s value based on metrics such as cash flow, earnings, or sales. To find the valuation multiples for a brewery, valuation experts apply the proper NAICS or SIC code. In the following section, we highlight SDE, EBITDA, and REV multiples for a brewery.
SDE (Seller’s Discretionary Earnings) Multiples for a Brewery
- The SDE multiple measures the value of a brewery based on its seller’s discretionary earnings. This is a common multiple in small business valuation.
EBITDA Multiples for a Brewery
- EBITDA multiples represent a brewery’s earnings before interest, taxes, depreciation, and amortization. This helps the business appraiser understand the return on investment (ROI) a brewery can generate.
REVENUE or SALES Multiples for a Brewery
- REVENUE or SALES multiples measure the value of a brewery in relation to the total amount of sales it generates.
To learn more on how to value a brewery using the market approach, see Valuation Multiples for a Brewery.
Valuing a Brewery Using the Income Approach
The income approach is another common valuation approach. When utilizing the income approach, a business appraiser assesses the cash flow potential of a brewery. In addition, this valuation approach assesses any risks associated with buying or selling a brewery. We discuss a few common risks below.
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- Financial Performance: Financial conditions in the brewery industry can fluctuate frequently. As such, it is important to have strong financial planning and budgeting skills.
- Machinery and Equipment: Breweries require a variety of machinery and equipment to produce beverages. It is vital to acquire high-quality equipment. You may also need a brewery equipment appraisal when valuing a brewery.
- Location: The location of a brewery has a strong influence on its success. It is best for breweries to locate near key markets for this industry such as areas with restaurants and bars.
- Competition: The brewery industry is very competitive. To succeed, breweries need to find ways to differentiate from competitors.
Methods to Value a Brewery Using the Income Approach
There are many variations of the income approach. The most common income methods are the capitalization of cash flow method and the discounted cash flow method. Both methods consider the cash flow potential of a business. Below, we discuss how to value a brewery using the capitalization of cash flow method and/or the discounted cash flow method.
Capitalization of Cash Flow Method
The capitalization of cash flow method is best if your brewery has a long and stable history. To value a brewery using this method, valuation experts determine an appropriate amount of earnings for one period. The earnings are then divided by a capitalization rate to calculate the rate of return investors can expect. In addition, the capitalization of cash flow method assesses the risks associated with buying, growing, or selling a brewery.
Discounted Cash Flow Method
The discounted cash flow is best for breweries with strong financial histories and predictable futures. This method involves projecting future earnings over a 3-5-year period. The valuation expert then applies a discount rate rather than a capitalization rate to the earnings. This approach measures the value of a brewery while taking the time value of money into account. Keep in mind, the discounted cash flow method is less common since it is limited to future cash flow predictions which can be arbitrary.
Summary
If you are looking to buy, grow, or sell a brewery, it is beneficial to learn how to value a brewery. There are several valuation approaches to consider when valuing a brewery. To know which approach is best for your brewery, obtain a business valuation. As part of a business valuation, you will also learn the fair market value of a brewery. In addition, a valuation expert can highlight the risks and opportunities of your brewery to help you succeed.
Peak Business Valuation is happy to help! At Peak, we work with breweries on a regular basis. As such, we can provide you with a business valuation for a brewery. Peak Business Valuation can also answer any questions about the value of a brewery. We also perform brewery equipment appraisals. Start now by scheduling a free consultation with Peak below!
For more information see Valuing a Brewery, Valuation Multiples for a Brewery, and Value Drivers for a Brewery.
