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Should I buy the business or the farm?

 
Posts: 188
Location: Mineola, Texas
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cat dog duck fish chicken homestead
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Hey Friends,

I am contemplating buying a farm that has over a hundred breeding cows, 5 bulls, 10 acres of fruit & berries, small chicken business, a little timber, a farm stay, and a few other things. It has been featured in several magazines, and so it has brand recognition. It is in a so-so location, 2 hours from the nearest large city.

They are not permaculture, but they are fairly organic, and the farm house is lovely as well.

My back of the envelope estimate tells me that I could double production.

They are profitable, large, and it would be very expensive to buy.
If I had all the cash, that would be great, but I think I would only be able to put 20% into it.

Upside, a turn key business, and I don't have to spend 10 years to make it work.
Downside, I'm going to be in serious hock to someone for 20 years.
What do you think???
 
steward
Posts: 7926
Location: Currently in Lake Stevens, WA. Home in Spokane
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You might want to find a local accountant who specializes in agriculture.
Have a good 'sit down' with him/her, and go through the numbers.
They may be able to give good insights on things you haven't seen/thought of yet.

 
Posts: 155
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There's more to it than your P/L after you increase production and the debt. Here's just a few off the top of my head - What personal liability (guarantee of the debt) will you have? Will the debt be fixed rate (rates are crazy low right now and 20 yr money at 5% is losing proposition for the lender if there is any inflation)? How is your current balance sheet (assets and debt)? Will the 20% down exhaust your savings and leave you with no cushion if something goes wrong? What would the debt service coverage be after you pay yourself (remeber you alwasy need to account for the time you put into the operation)? What's the ROI for the business as-is based on their asking price? Is the multiple being charged on current earnings fair to you? How does the price of the land stack up against comparable sales in the area? Are you going to be doing this full time? If so can you purchase disability insurance at a reasonable price to cover your obligations should something happen? Health insurance? Liability insurance? Employees? What are the tax benefits and possible negatives for you and how does that help/hurt your bottom line? What the optimum corporate structure (C Corp, LLC, ect) for you should you move forward?

 
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