Valuing a Brewery
There may have never been a better time to own a smaller-sized brewery. Recently, industry insiders have noted changes in consumer preferences. Many consumers now prefer craft, local beers to large company breweries. Small breweries today have new opportunities to gain market share. In an industry with such large players, this news means good things for the smaller brewery. From a valuation standpoint, the implications of this migration to craft beers are huge. This change provides small brewery owners a significant edge to help them grow their company and thus, increase the value of a brewery. Below we discuss how a valuation expert goes about valuing a brewery.
Whether you are just starting or are a seasoned veteran in the brewery industry, understanding how to add value to your brewery is important. Understanding how businesses create value is the foundation needed for you to increase the value of your brewery. The first step in doing so is obtaining a business valuation.
Many factors impact the value of a brewery. As a business appraiser, Peak Business Valuation works with dozens of individuals who are buying or selling a brewery. As part of a valuation engagement, we discuss some of the key factors valuation experts use when valuing a brewery. Keep in mind the below factors are only a guide. For more specific information about valuing a brewery you are looking to buy or sell, schedule your free consultation with Peak Business Valuation.
Market Multiples for a Brewery
The below numbers are average valuation multiples for a brewery. A valuation expert uses multiples when valuing a brewery.
- EBITDA Multiple Average Range: 4.24x – 4.74x
- SDE Multiple Average Range: 3.24x – 4.19x
- REV Multiple Average Range: 0.84x – 1.16x
** Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
How is a brewery most often valued?
A valuation expert uses a variety of business valuation approaches to determine the value of a brewery. Often cash flow multiples – SDE and EBITDA multiples are most applicable. Yet, the valuation expert uses their knowledge and expertise to determine what methods and multiples apply to your brewing business.
By increasing your understanding of what your brewery is worth, you can begin to take steps to increase the value of your brewery. This is helpful whether you are expanding your brewery, acquiring a new brewery, or wanting to maximize the value of your brewery before selling. Here are a few ideas to help increase your brewery value. If you are searching for a more extensive valuation, schedule a free consultation with Peak Business Valuation, business appraiser.
For more information, see Value Drivers for a Brewery and Valuation Multiples for a Brewery.
Key Success Factors for Valuing a Brewery
Peak Business Valuation, business appraiser, values breweries regularly. We are passionate about helping small business owners understand their businesses better. Below are several success factors that can help distinguish your brewery and increase the value of a brewery.
Develop a Diverse Product Line
Consumer tastes change frequently, and it can be difficult to predict how they will change in the future. Thus, diversifying your product line can create so much company value. Selling new products creates new revenue opportunities—especially if customers trust your company. For example, if your brewery is known for craft beers, adding hard seltzers can be a logical choice. Doing so may result in trusted customers purchasing new products. Your brewery may even attract new customers not previously reached.
Other than the revenue impacts, there is also risk aversion with diversifying your product line. When a valuation analyst looks at your brewery, they will look at your product line/revenue streams. They will analyze how much revenue each product line produces for the brewery. Having many products with an even distribution of revenue improves your value as it removes risk. The combined impact of increased sales and decreased risk can have a big impact on your brewery’s value. See How Revenue Impacts Value.
Getting customers the products they want when they want them is just as important as any other factor. As a small brewery owner, securing distribution channels is an uphill battle. You likely do not have dozens of breweries and distribution centers across the nation. Securing contracts with trusted retail and delivery partners can help you here. It may also be better for your brewery to carefully select markets in which it distributes. Better to provide excellent service to a few communities than spotty service to many communities.
Providing consistent distribution does wonders for improving revenue outlooks. Keeping your retail partners stocked ensures you do not miss sales opportunities. It can also increase customer loyalty—hard to be loyal to a product consumers cannot reliably find. Improving distribution improves revenue which helps you run a more profitable, valuable business.
Establish Quality Control Protocols
IBIS World reports that the top five players account for over 70% of the brewery industry revenue. With such large breweries, how does the small business owner compete? The answer is simple—they need to produce higher-quality products. And especially with the shift in consumer preferences towards craft beer, it can be done! Thus, it is important for the small brewery to establish excellent quality control protocols. Better quality control results in better products. Yet, creating effective quality control requires investments —but investments that return. If your number one weapon against large breweries is quality, then implement effective quality control.
How will quality control affect the company’s value? By investing money and time into quality control, you can expect your short-term costs to increase. This will decrease your profitability and company value during development. Yet, once developed, you can expect sales to increase. Consumers prefer quality products and will be pleased with your consistent excellence. This will increase your revenue, profitability, and your company’s value.
There are many important considerations when valuing a brewery. Understanding the value of a brewery is important whether you are looking to buy, sell, or grow a brewery. Obtaining a business valuation can help you understand the fair market value. It can also help identify opportunities to maximize the value of a brewery.
If you are interested in reading more of our articles on breweries, check out the following articles on Value Drivers for a Brewery. As well as, Valuation Multiples for a Brewery.
Peak Business Valuation, business appraiser, provides business valuations for breweries across the country. We are happy to answer any questions you may have valuing a brewery. You can reach out by scheduling your free consultation below.
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