When valuing a winery, experts should generally approach it as they would any other manufacturing process—with a few key differences, explains Keith Meyers (Perkins & Co.), who conducted a recent webinar on valuing wineries.

Proper aging: First of all, the process of turning grapes into wine has a long lead time—about two years—according to Meyers. “Because of this long process, inventory turnover is very slow,” he says. Also, it takes a number of years for inventory to “stabilize,” which means you need to extend your forecasts past the stabilization period. “You may have to forecast out up to 10 years to develop a reasonable value,” he says.

Another factor to consider is that the inputs to the process are not typical raw materials—they are agricultural products that can be volatile due to the effects of Mother Nature. “The quantity and quality of the inputs—the grapes in this case—can change materially from year to year, so you need to take that additional risk into account,” he advises. In some cases, wineries have had to scrap as much as a year’s production because of problems with the grapes or the quality of the wine.

Bitter taste: There’s one issue that can have a major downward impact on valuation—and it has nothing to do with the grapes. If the owner has plopped a million-dollar mansion onto the property and uses it as a primary residence, the value of the winery will be negatively impacted, Meyers points out. Potential buyers will then be limited to “lifestyle” buyers—those looking to live and work on the property in grand style. Better to have a modest structure on the property that the new owner can possibly convert to other purposes, such as housing for the vineyard manager or winemaker.

To access a recording to the webinar, Special Considerations in Valuing Wineries, click here (purchase required).