Providing Ideas on What It is and How You Quantify It

(April 4, 2007)  If you ask ten small business owners if they want to sell their business, nine of them will answer your question with a question of their own: “how much are you willing to pay?”  This short discourse illustrates a very important point to anyone interested in purchasing or selling a business: the value of the business is the price a buyer is willing to pay. 

Business Brokers and other valuation professionals use numerous methods to provide a good starting point for the price of a given business; valuation methods examine sales, profit, property, and equipment, to name a few tangible components.  There are also other items that are less corporeal.  For example, copyrights, patents, branding, trade secrets and supply base are all intangible assets.  They add value to the company, but you can not necessarily "drop them on the floor" like a mill or a lathe or a semi-truck. 

Although not as easy to put a price tag on, intangible assets are certainly accounted for during the sale of a business.  For example, a business with $500k in tangible assets that is sold for $800k has $300k worth of intangible assets in the company (on the balance sheet, this will show up as goodwill).  Therefore, the buyer and seller are agreeing that the brand name recognition, patents, copyrights, etc., have a combined value of $300k.

Although intangible property is difficult to value, a business owner will seek compensation for the hardwork put into his brand name or patent or other intangibles.  When these intangible assets are "producing" - that is, helping to generate a profit, it is clear that they impute value to the business. 

Your Clear Rock valuation professional or broker can help you more accurately understand what this value is.

For more information on this topic and others, please feel free to contact Brett Paradis at Clear Rock.  Brett can be reached at 201-433-0679 ext. 117.