By ANN HINCH
Assistant Editor

INDIANAPOLIS, Ind. — With so many agriculture-related groups kicking off 2009 with yearly gatherings in Indi-anapolis, it seemed the right spot for the Independent Professional Seed Assoc. (IPSA) to stage its 20th annual conference and trade show in late January.
One session focused on seed companies managing the value of their businesses. Harry Sutter, president of Brighton Corp. – an accountant, appraiser and operator of his family’s grain and orchard farm – has been consulted to determine the value of a seed business when a buyout, merger or partnership is on the horizon.

“Business owners don’t really know what the true value of their business is,” he said, explaining many will base their firm’s value – and the value of those in which they’re interested – on dollars per unit, comparison to similar businesses Securities and Exchange Commission (SEC) filings.

None of these are complete or accurate. For instance, Sutter said the dollars-per-unit approach doesn’t take into account sales volume or season. Databases can be inaccurate and data can be manipulated. SEC filings on public companies may contain “very clever wordsmithing” to hide particular information from public view.

“You’re just not going to find enough information to make an informed business decision off of,” he said, comparing it to blindly selling seed to a customer without knowing their climate, soil or farming system.

Finding the true value of a business means due diligence: close scrutiny, including “slicing and dicing” contracts, possible and outstanding litigation, building plant safety and many other aspects that may have nothing to do with sales.

“What I want out of this process is to form some opinion of how intensely the business is managed,” Sutter explained – not just what’s on the books. “The numbers take care of themselves.”
Buying and selling isn’t the only way a seed company, or any business, manages its value. For example, a small company may not offer employees the big benefits a larger company can, so it might instead give them shares in the company. Owners may also transfer part or all of that ownership to the next generation – and, in doing so, lower the company’s value to avoid high tax bills tacked onto the process.

Sutter pointed out perhaps a seed company was begun by the current owner’s grandparents decades ago – a common enough scenario – but now it may have 30 family members with ownership claims. This also affects value.

A few common mistakes Sutter has seen, and how to avoid them, include:

•Be sure to register a company’s name, logo and trademark. Many times, those are the most important things a business has to sell (think of how recognizable the John Deere deer logo is, and what it is likely worth).

•If striking a deal with a buyer or seller, be sure to get a reasonable buy-sale agreement in place, with agreement from all shareholders, and sign it. Better details can be negotiated at a later point, but getting everybody to agree to the same action is difficult.

•Consider creating separate business entities for different focuses of a company – for example, keep retail separate from research and development (R&D). By the same token, he warned small seed companies to be careful of how much money they put into R&D, since traits is an area on which larger companies can afford to spend more money – and have.

•Be mindful of entanglements involving the business, legal and otherwise. “A lot of effort goes into going into business, and not enough into getting out of it,” Sutter noted.
Seed company owners who have specific questions about managing their own businesses’ value may contact Sutter through his office, at 309-828-1916.