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Opportunities

Distribution & Supply of Farm Feed

CASH FLOW
$381,696

Specifications

  • Price
    $1,450,000

  • Revenue
    $5,615,254

  • Cash Flow
    $381,696

  • Location
    Regional Minnesota company

  • Equipment
    $206,700

  • Inventory
    $135,000

  • Employees
    3 FT / 4 PT

  • Down Payment
    12.5%

  • Reason for Sale
    Retirement

Located and serving hundreds of farms in Minnesota, this livestock feed supply & service company has a large drop-ship customer base. Specializing in providing traditional, natural and organic feed, on-farm services, consulting, and nutritional advisement, clients range in size from small hobby, beef and dairy farms to large beef operations (300-500+ head) and 1,000+ head dairies. Nearly 90% of product is drop shipped, with the business offering a weekly delivery route and retail location for quick orders.

Customers are split 75% dairy/beef, 15% poultry, and 10% pets and hobby farms. Pets and hobby farms present a huge growth opportunity, as the company’s store and route easily appeal to that demographic. The company sells national livestock and pet food brands, and is currently working on developing and implementing private label feed.

Inventory, offices and the retail store are located in well-kept and updated warehouses. Staff includes Inside and Outside Sales Managers, a Delivery & Warehouse Manager, Bookkeepers and 2 support personnel for warehouse operations. In preparation for acquisition, the seller has been positioning the company for a seamless transition to new ownership, ensuring that day-to-day functions can be absorbed by new management and key staff.

Business Highlights

  • Years in Business: 24
  • Location and Service Area: Regional Minnesota company
  • Active Clients: 100’s of farms, pet owners & hobby accounts
  • Client Demographic:
    • 75% dairy/beef
    • 15% poultry
    • 10% pets and hobby farms
  • Services: Traditional feed, some natural & organic feed, feed delivery, consulting, nutritional advisement teams
  • Building: 12,000+ sq. ft. of warehouse space with office & retail space
  • Reason for Selling: Retirement
  • Employees: 3 FT / 4 PT
  • Hours: Mon – Fri 8am to 5pm
  • Seller Training Period: Up to 90 days
  • Growth Opportunities: More marketing & supplies for hobby farms and pet owners. Private label feed. Expand service radius. More natural and organic feed options. Business development outside of dairy and beef concentration.
  • Current Owner’s Responsibilities: Seller has been establishing the company to be acquired. Many of the day-to-day functions can be seamlessly re-assigned to new management and key staff.

Financial Highlights

  • List Price: $1,450,000
  • Gross Sales:
    • 2017 - $5,615,254
  • Cash Flow:
    • 2017 - $381,696
    • 2016 - $376,531
    • 2015 - $411,622
    • 2014 - $287,883
  • Assets Included in Purchase:
    • Equipment: $206,700 – furniture, fixtures, 6 metal bins
    • Vehicles: $251,879 - 1 box truck, 2 F150 trucks, fork lift, bulk truck
    • Inventory: $135,000 - $150,000 – bags & some bulk inventory

*replacement value - amounts may vary

Cash Flow Analysis

Description of Financial StatementTax ReturnTax ReturnTax ReturnTax ReturnNotes
2017201620152014
GROSS SALES$5,615,254$8,063,893$8,245,298$7,658,497
Net Income Shown on Financial Statement$179,137$154,169$264,170$147,228
ADDBACKS
Compensation to Owner$76,160$85,268$64,278$64,278
Tax on total W2 Salaries$8,378$9,379$7,071$7,071
Depreciation$4,535$10,680$7,419$1,946Non-cash item
Interest$9,205$18,404$17,171$17,561Non-onward going expense
Amortization$5,532$13,272$13,273$13,272Non-onward going expense
Meals & Entertainment$120$374$335$429Non-onward going expense
Health Insurance$10,039$10,409$10,409$10,409$864.47/month for owner
Dental Insurance$534$534$534$534$44.58/month for owner
Personal Fuel$2,697$7,948$14,143$12,28940% personal
Personal Travel$2,639$9,221$5,236$2,75850% personal
Personal Auto$10,624$3,489$4,689$7,21440% personal
Cell Phone$1,382$1,382$1,382$1,382$115.23/month
Home Internet$1,512$1,512$1,512$1,512$126.08/month
Home Office Furniture$0$10,700$0$0Non-onward going expense
Consulting$0$39,790$0$0Professional fees
Continuing Education$9,160$0$0$0Non-onward going expense
Eliminated Wages$53,442$0$0$0Positions no longer needed
Meetings$6,600$0$0$0Other business venture
TOTAL ADDBACKS$202,559$222,362$147,452$140,655
Seller's Cash Flow = Total Addbacks + Net Income$381,696$376,531$411,622$287,883
Profit Margin6.80 %4.67 %4.99 %3.76 %

 

  • 7% Profit Margin in 2017 compared to 5% in previous years

Services

  • Team approach – more than 1 set of eyes on a farm to spot needs and areas of improvement
  • Service support on farms
    • “leg work” – ordering, billing, pull samples for testing, logistics
      • Make transaction simple
    • Nutritional consultation
      • The company does not employ nutritionists, but instead works with vendors’ nutritionists to provide this service to farms
      • Nutritionists are paired with the farm based on need and fit
Analyze feeding operation Maximize forage usage Analysis of silage and hay
Review of grain mixture Evaluate cost-to-benefit ration Integrated balance feed options
  • Utilize crop productions to achieve cost efficiency and high production
  • Design feeding program to meet nutrient needs
  • Bulk and bagged feed delivery
    • Drop ship option for bulk orders
      • 85% - 90% of product is drop shipped
    • Route delivery for smaller orders

 

Feed & Supplies for:

 

Dairy Beef Seed
Poultry Swine  
Horse Pets  

Clients

Client Breakdown
  • 75% Dairy / Beef
  • 15% Chicken
  • 10% Pet Food / Hobby Farm
 
Demographics
  • 100’s of farms, pet food & hobby accounts
  • 1,000+ head dairies
  • 300 – 500 head beef operations
  • 50 – 400 head dairies

 

  • 90% of business is within a 50-mile radius of the company’s office/warehouses
  • Top 10 customers make up 60% of business
  • Focus on small to medium-sized farms with the ability to manage any size farm from hobby to commercial size
  • Business model allows for exponential growth beyond current service radius

Employees

Finance/CFO Consultant
  • Budget/analysis oversight
  • Profit & Loss analysis/reporting
  • Financial oversight
Bookkeeper (PT)
  • A/P, invoicing, office administration, IT management
Bookkeeper Assistant (PT)
  • Filing, invoicing, A/P, office administration, social media management, database management
Outside Sales Manager
  • Sales goals, customer service/relationships, sales rep alignment, special product promotions
Inside Sales Manager
  • Order management, inventory/purchasing, samples management, shipping/receiving
Delivery/Warehouse Manager
  • Warehouse management, deliveries, retail stocking, truck maintenance/repair, inventory management
Operations Support (2 PT)
  • Warehouse assistance, inside sales assistance

More extensive information regarding employee duties, pay and benefits available in the Deal Room.

Growth Opportunities

  • Hobby farms and pet owners
  • A smaller portion of the business, but an ideal area to grow through social media marketing
  • Smaller farms are losing out to larger operations and many are transitioning into hobby farms
  • The pet industry is a huge money-maker and offering more pet products in the retail space is a great top line booster 
  • Market truck route to hobby farms
  • Trucks run several days/week for deliveries and is great advertisement for the company
  • The route provides convenience for hobby farms
  • Operate the truck route as bringing the country store to the customer 
  • Hire another sales person or more to work with current opportunities as well as business development
  • Great option to expand territory and market to existing clients & new product areas 
  • Business development
  • Focus on building larger customer base outside of dairy and beef operations
  • Best way to diversify revenue 
  • Expand service radius
  • Most of the current business has been focused on a 50-mile radius, but the company model allows for expansion beyond that radius 
  • More natural and organic feed options
  • This will appeal to hobby farmers, urban farming and backyard farming 
  • Private label feed
  • The company has made the move toward this as it has a better price point

Valuation Details

The Firm Business Brokerage used a Cash Flow Valuation methodology to determine the Purchase Price of the business. 

The formula used is as follows:

Cash Flow       x          Prescribed Multiple     =          Fair Market Value

Cash Flow is the sum of business net income plus any owner perks and any non-onward going expenses.

A multiple is prescribed by a 20 question, 100-point parameter ranking system that is used to analyze the current business health. Each question is based on a scale from 1 to 5: 1 being low, 2 below average, 3 average, 4 above average, 5 high. The average of the responses sum is the business’ prescribed multiple.

For this business, the 2017 Cash Flow was used with a prescribed multiple of 3.8.  With this information, the computation is as follows:

$381,696         x          3.8       =          $1,450,444

 

The Fair Market Value found above positions the business List Price at $1,450,000

Funding Example

Purchase Price:                        $1,450,000

12.5%Buyer Down Payment:      $181,250

12.5% Seller Carry Back:             $181,250

75%Bank Loan:                        $1,087,500

Seller Carry Back 5-year term at a rate of 4.50% equals a monthly loan payment of $3,379

Bank Loan 7-year term at a rate of 5.50% equals a monthly loan payment of $15,627

After business expenses and loan payments, a buyer with a 12.5% down payment of $181,250 would retain a profit of $148,453 which results in an 81% return on investment in the first year.

A lender is required to have a minimum 1.5 coverage ratio for any business loans extended. At a proposed Purchase Price of $1,450,000 with the terms listed above, the coverage ratio is 1.65. 

Please note that the decision of whether to extend a loan on any sale belongs to the bank, and this document does not guarantee specific terms or verify that financing is available. 

Purchase Price:

$1,450,000

$
%
OR
$
%
OR
$
Years
%

Bank Loan Needed: $

Years
%
$
$
$
$
$

Funding Details

Business:

Offer Price: $

% Buyer Cash Down at Closing: $

% Seller Carry Back via Promissory Note: $

year term at a rate of %

% of Purchase Price secured by Buyer and Seller

Total Bank Loan Need: $

% of Purchase Price

Desired Loan Type:

Desired Bank Terms: year term at a rate of %

Total Business Assets, Inventory, and A/R: $

Total Undercollateralized Loan: $

Loan Payments

Monthly Payment to Bank: $
Yearly Payment to Bank: $
Monthly Payment to Seller: $
Yearly Payment to Seller: $
Total Monthly Debt Service: $
Total Yearly Debt Service: $

Conclusions

Fixed Charge Coverage Ratio

The bank will require a minimum ratio of 1.5 to be lendable.

Cash Flow:
2016 Cash Flow
$
Annual Debt Service: $
RATIO:

Buyer's Net Operating Income (NOI)

The amount of money the Buyer will retain as profit.

Cash Flow:
2016 Cash Flow
$
Annual Debt Service: -$
NOI:

Buyer's Return on Investment (ROI)

The rate of return on the Buyer's down payment.

Down Payment: $
NOI:
ROI: %

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