TLDR: Margins are everything.

How do you value a spirits business without cash flow?

Without the anchor of a cash flow multiple, valuation can become very arbitrary.

So do we toss out fundamentals and trust our gut on the team and the dream?

No.

We use cash flow. Cash is all that matters. In any business. Always.

Listen to the Wu-Tang Clan:

"But Bubba, you just said most spirits businesses don't have cash flow"

That's true...

But the eventual strategic buyer will!

So how do we evaluate the cash flow of an unknown third party in the future?

Gross Margin!

Gross margin is the value generated by the sale of your product.

The strategic buyer will have established sales and corporate infrastructure.

Adding a brand to their portfolio doesn't materially change those costs.

The value they will receive is your gross margin multiplied by the sales they can achieve in their organization across their footprint.

A few bucks of GM might not affect your bottom line 10k cases, but how big of a difference is $3 per bottle when Diageo is selling millions of cases?

But Also: Gross Margin

Gross Margin is also an important qualitative measurement.

How do you measure or quantify “brand”?

I would argue that brand value is quantified by the premium a customer will pay for your product over an equivalent unbranded alternative.

Gross margin is that premium.

It’s important…