Trees to the horizon. Room for lots more.
Tree Farm For Sale
(To the right person)
We want to retire. Sort of. If the right person comes along who has the energy to take somewhat successful tree farm to the next level up. To do that we need to pass the torch, but we are finding that tree farms are not a hot item in the current market.
Price of the business
There are various ways to value a business:
Based on Assets: Lot of the rest of this page talks about the assets. But the assets are an ungainly set difficult to sell.
Based on revenue: Last three years average sales about $100K. Trend is upward. Earnings have been 30-40% of that. Based on 3-5 times earnings we would get 90 to 200K for the value of the business.
This page: https://www.bizex.net/business-valuation-tool with reasonable assumptions puts a valuation of $600K
That price is deceptive. That is just for the business. And as a business that's a fair value. Normally a business is figured on either a small multiple of the gross profit, or a fraction of the annual sales. For a garden centre on rented land with no inventory carried over, it would be a fair price.
This is a working farm. Currently making $30K/year on sales of $100K/year. Could make $150K/year in 5 years. The farm has 80 acres of land, but only 10 of it are in trees. So it's an 80 acre farm that grosses $10,000/acre on 1/8 of it.
Multiplying the size of the operation by 6 would be easy. Of the remaining land, 12 is in bush, and likely you would want to keep it in bush. 6 more are hilly enough that our method of growing trees won't work.
A tree farm is more than just a business
Tree farms aren't pizzarias, with a set of ovens, and an inventory that turns over weekly. A conventional business is set of flows of goods, work, and money, with as little as possible tied up in production, real estate and inventory.
A regular farm has a lot of money tied up in land, in equipment. A tree farm is worse: You don't plant trees in May and harvest in September like you do wheat or turnips. There's a lot tied up in inventory.
In other businesses inventory is just there. It's money that's tied up. You work hard to see that the amount of money tied up in inventory is small. "Inventory Control", "Just in Time" are watchwords. Or it's something that gathers dust. In a tree farm your inventory is an investment. It appreciates in value. It also requires care. A big part of our effort has been to increase the value of our inventory. So while the cash flow has been small, the potential cash flow is much larger.
With trees, your work tends to be heavily weighted to the front end. The effort is in potting it, setting it up with irrigation, wind protection. After that it's a yearly visit to fertilize, and to weed, and running around with sprinklers.
How fast does that value increase?
- Paper birch seedling: Wholesale cost $0.85
- Paper birch 2 years old 2 feet high in a 1 liter styro block $6.00
- Paper birch 3 years old 4 feet high in a 6 liter pot $20
- Paper birch 5 years old 8 feet high in a 20 liter pot $50
- Paper birch 8 years old 12 feet high in a 40 liter grow bag $120
Location 45 minutes south west of Edmonton. This location is sub-optimal for garden centre sales, but we find that it doesn't bother people to drive this far for a pickup load of trees. Our average sale is $400 to $600. For comparison, consider Mr. V's, the Saskatoon Farm, both successful tree farm/nursery centre operations that are not adjacent to the Big City.
$247,000 Inventory.
This includes all the trees valued at approximately 40% of retail value (about $620,000). We currently have 40,000 trees, valued at around 619,000. This inventory figure is effective 1 March 2018, and includes ordered trees but doesn’t include presales. Full inventory description on request. You want inventory? Come take a look. Buy it all, or buy just a bit. Note that to get the 40% price you have to be buying all of it. I normally mark up stuff I buy for resale by a factor of 2 plus a bit for shipping.
The house is 2500 square feet, and is a bit run down, but is weather tight, heats very efficiently and has lots of room for books. It was built in two stages. The right section in the picture is a modular home, set on top of a full basement, was built in 1983. The main floor has laundry, living room, and master bedroom with small ensuite bath and walkin closet. The basement has the mechanical room, two small rooms, and rest is a single open space. We use the big space for our library.
The left, two storey section was built 4 years later. It is build over a crawl space. The main floor has dining room, big kitchen and big bathroom with both shower and jacuzzi tub. Upstairs is a loft space that overlooks the dining room, and two small bedrooms, and half bath. At present we use one room as a guest room, and one room as an office.
A breezeway connects to the garage. Our freezers live here, along with the trash cans, garden tools, and during the winter a sled full of wood. As a farm, there is usually a bunch of odds and sods that park here to be returned to their proper location. It also is where our dogs hang out.
The garage is about 1200 square feet. Half is used for a shop. The other half for one car, and for storing recycling.
*$497,000 House and 80 acres of land. *
The house: If you are looking just for a rural property, this place is probably over priced. If you want a nice place to live while working your tail off making a solid future for you and your family, keep reading.
The land is a mix, but roughly has 12 acres of bush, 10 acres of active tree farm, and the remainder in ungrazed pasture that is reverting to prairie. Land in the area goes for $2K to \4.5K an acre. So that works out to 160K for the land, 315K for the house.
It also includes an annual revenue of 3500/year for a gas lease. You can use the standard formula for the present value of an annuity to value this. On the spreadsheet in the Due Diligence section I valued this using standard present value formulas.
$49,000 Consulting During your first year I will come and spend a week with you every month during the growing season, and up to 3 hours phone/internet consulting the rest of the year. I can’t imagine this happening unless you are buying most of the rest of it all. This includes web site maintenance. If you know what you're doing then don't buy this option. We're flexible about this. If you want just phone support, or just support for a couple months, or want to call fly in visits, we can likely accommodate you.
Equipment
30,000 Deutz 55 HP diesel tractor Includes front end loader. 6000 hours. Four wheel drive. Also includes:
- 3 share plough
- 7 foot set of disks
- 6 foot set of harrows
- 6 foot bush mower
- 84 inch Bueler snowblower
- 3ph forklift
- 3ph auger
- Weedbadger
$4000 Kubota diesel tractor. Model B7100, 16 hp Kolhler diesel engine. This includes: * 6 foot scraper blade * 38 inch rototiller. * The harrows can be used on this one.
$8000 Grasshopper diesel mower 25 HP diesel Zero turn radius lawn mower. Under 500 hours. Not for sale until land is sold.
$2000 Grasshopper gas mower 25 HP gasoline zero turn radius mower. About 4000 hours. This is my spare.
$5000 Shop tools.
Table saw, Bandsaw, jointer, radial saw, chop saw, cabinets. This includes inventory of nuts and bolts, screws, plumbing bits, electrical bits… A cluttered garage full of stuff. I'm taking my hand tools, and that's it.
5 x 10 trailer for moving trees on property. (It needs some work to be road worthy)
12 foot enclosed trailer for pickups and deliveries
Van Dale soil mixer This works but is near end of life.
2006 HD2500 Silverado 140,000 km, 5 spd manual transmissions, gooseneck hitch and bumper hitch.
Grasshopper Diesel Mower 6 foot deck. Main mower.
Grasshopper Gas Mower 6 foot deck 4000 hrs. Our spare.
Groundhog power auger
Shop
* tablesaw,
* drill press,
* band saw,
* jointer,
* radial saw,
* chop saw.
* Bench grinder.
Intagibles
- 800 cubic meter pond. Potential sites for 3 additional ponds, two additional dugouts.
- Computer with accounting program set up, all contacts, suppliers, customers, history. This computer replaced in 2015. Up to date.
- FB page,
- Google+ page,
- MailChimp accounts. 1500 people on the mailing list.
- Web site, on reliable server.
- Facebook reputation.
One package all in.
One of the gotchas about buying a business: All too often it comes with a property lease, equipment leases. Lots of things that are hidden drains on your resources. Not here. Buy the farm, and you and your bank own everything. Nothing is leased. Nothing is rented. No hidden costs. Zero. Everything is free and clear. You aren't buying a half paid for tractor; a monthly payment on a truck. There's no mortgage, no equipment debt and no liens on anything on the farm. Your entire debt load for the initial purchase is at the much lower mortgage rate rather than the higher rates charged for equipment.
What's Next?
We could just sell out the farm piece by piece, but I think it has far more value as a working farm in the right person's hands than it does as separate assets.
Is it worth over a mil? In the right hands it can pay for itself in 10 years. Right now it makes more than the interest on the loan. (Figured at 3% on 1 million.) As you read on, work with a spreadsheet and make notes.
But we’d rather sell it as a working tree farm.
Why? Why would you want to do this?
Read on...
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Sherwood's Forests is located about 75 km southwest of Edmonton, Alberta. Please refer to the map on our Contact page for directions.