If you plan to sell your custom harvesting business, putting a value on it might be tricky.
“Aside from their equipment, which many custom harvesters lease, their real value is their tradition of supplying services and history of working with clients on an ongoing basis,” says Doug Sutter.
Sutter, a Brown County, WI, extension agent, says it's tough to put a value on a harvester's client list.
“Many Midwestern custom harvesters are working with 15 to 30 clients, which is valuable, but it doesn't represent a huge clientele.”
Kevin Dhuyvetter, a Kansas State University ag economist, concurs.
“What many custom harvesters have to sell is blue sky, and it's difficult to give that a dollar value,” says Dhuyvetter.
According to him, a harvester's business is worth more than his equipment's value only if his profits are above average. That might be the case if the operator works mostly with big-acreage clients, thus is able to operate at above-average efficiency.
On average, owners of custom harvesting businesses can expect annual returns on investment of 7-10% after they've paid all expenses, including wages for themselves, Dhuyvetter notes.
“Just like farming, though, we see operations doing considerably better than this and, unfortunately, some doing considerably worse.”
Dhuyvetter, along with Terry Kastens, also a Kansas State economist, conduct the Custom Harvesters Analysis & Management Program (CHAMP) for U.S. Custom Harvesters, Inc. CHAMP provides financial benchmarks for the industry and helps individual participants recognize the strengths and weaknesses of their operations.
“When people look at buying or selling a custom harvesting business, the type of information generated from CHAMP can be very helpful,” says Dhuyvetter.
In some areas, custom forage harvesting is relatively new, so little precedent has been set to determine resale value.
“Most of our state's custom harvesters have been in business less than eight years,” says Wisconsin's Sutter. “Ten years ago, most of our dairy farmers were still harvesting their own forages.”
“Custom harvesting is a relatively small industry, so it's difficult to even know where to go for help,” adds Dhuyvetter. “Help is out there; it's just hard to find.”
Possible sources of help include ag loan officers and bankers, the Internet and attorneys and accountants who specialize in agriculture.
If you're considering selling a custom harvesting business, here are some questions to consider:
How much revenue does the business generate annually?
How much equity in the equipment do you have?
How long is the client list?
Does that list include quality clients — people reasonable to work with who pay their bills on time?
Next, estimate the value of the equipment if it's not leased. A machinery dealer should be able to give you a fair appraisal. The next step is determining if a premium should be charged for the client list, business name, logo, etc.
Knowing how much of a premium to ask for is tough, says Dhuyvetter.
“That number is so hard to nail down because it depends on so many things,” he says. “There's not some magic formula to use for buying or selling a custom harvesting business.”