Research note
Inspection Status Is a Balance-Sheet Item
Custom-exempt, state-inspected, and federally inspected shops can sell into different markets. That status decides what a buyer can do with the business, so it belongs in the valuation.
Rule map
What the custom exemption allows, step by step
Under 9 CFR 303.1, custom-exempt meat starts with the owner's animal and ends in the owner's household.- The owner delivers the animalCattle, sheep, swine or goats, delivered by their owner for custom slaughter (9 CFR 303.1(a)(2)).
- The shop slaughters and preparesCustom slaughter and preparation of the meat, exclusively for use in the owner's household.
- Marked Not for SaleCustom prepared products are plainly marked Not for Sale immediately after they are prepared.
- Back to the ownerThe products stay identified as Not for Sale until they are delivered to the owner.
| Step | Purpose |
|---|---|
| The owner delivers the animal | Cattle, sheep, swine or goats, delivered by their owner for custom slaughter (9 CFR 303.1(a)(2)). |
| The shop slaughters and prepares | Custom slaughter and preparation of the meat, exclusively for use in the owner's household. |
| Marked Not for Sale | Custom prepared products are plainly marked Not for Sale immediately after they are prepared. |
| Back to the owner | The products stay identified as Not for Sale until they are delivered to the owner. |
The custom exemption in 9 CFR 303.1 covers custom slaughter of cattle, sheep, swine or goats that the owner delivers to the slaughterer, along with preparation of the meat, where that meat is exclusively for use in the owner's household. Because that meat is reserved for the owner's household, Flynnstone treats a shop's inspection status as part of what a buyer is paying for, on the same footing as the lease.
Census County Business Patterns reports 5,676 U.S. meat-market establishments and 50,096 employees under NAICS 445210, which sizes the sector a search-fund buyer would screen. That count carries no split by inspection status, so the status of any single target has to be established in diligence, shop by shop.
Custom-exempt product carries a Not for Sale mark
Under the same section of 9 CFR 303.1, custom prepared products are plainly marked Not for Sale right after preparation and stay identified that way until they reach the owner. Flynnstone reads custom throughput as a service line with no saleable inventory behind it, since the finished meat goes back to the household of the person who delivered the animal. A buyer who models a shop's custom volume as future counter sales is modelling meat that the exemption reserves for the owner's household, and a seller's growth case built on converting that volume belongs in diligence before any of it reaches the multiple.
State and Federal inspection start with an application
The FSIS State Inspection Programs page states that establishments have the option to apply for Federal or State inspection, and that States running meat or poultry inspection programs do so under a cooperative agreement with FSIS. Under a State MPI program, as FSIS describes it, a State operates an inspection program that enforces laws at least equal to Federal requirements for meat and poultry products distributed within the State.
Because inspection is something an establishment applies for, the buyer has to confirm what happens to the shop's inspection when ownership changes at closing. Whether it carries over to a new owner is a question to put in writing to the State program or FSIS before signing, and the price should rest on the answer.
The FSIS description of State MPI programs refers to products distributed within the State. A plan that adds wholesale accounts beyond the State line therefore needs a written answer from FSIS and the State program on what status that distribution requires before the revenue goes into the model.
How the status moves the price
Two shops with the same SDE can give a new owner different options. A custom-exempt operation under 9 CFR 303.1 turns out product reserved for the households of the animal owners, while a shop that holds Federal or State inspection works inside a program with defined requirements, which in the State case are at least equal to the Federal ones. Flynnstone's reading is that the multiple should reflect what the current status lets the next owner sell, and that any upside requiring a status the shop lacks today is a separate project with its own cost and timeline. A seller who prices that project into the asking number is asking the buyer to pay for an application the buyer will have to file and carry.
Questions to put to a seller
- Which status does the establishment hold today, custom exemption under 9 CFR 303.1 or Federal or State inspection, and which documents show it?
- If the shop is State-inspected, is the program one that the State runs under a cooperative agreement with FSIS, and which State office holds the shop's file?
- What share of throughput is custom slaughter of livestock delivered by its owners, and is that work recorded apart from product sold over the counter?
- How does the shop mark custom product Not for Sale after preparation, and how does it keep that product identified until the owner collects it?
- For inspected product, which accounts receive it, and are any of them outside the State, given that FSIS describes State MPI programs in terms of products distributed within the State?
- Does the grant of inspection stay with the establishment after a change of ownership, and has the State program or FSIS said so in writing?