Business Assets and Business Pricing
Wikipedia Defines intangible business assets as: those non-monetary assets that cannot be seen, touched or physically measured and which are created through time and/or effort. There are two primary forms of intangibles - legal intangibles (such as trade secrets (e.g., customer lists), copyrights, patents, trademarks, and goodwill) and competitive intangibles (such as knowledge activities Know-How and Knowledge collaboration activities, leverage activities, and structural activities)
For small and medium sized businesses these assets can dramatically affect the price a business will command. If you read the section on DE you will know that a buyer will pay a multiple of the cash flow. In a situation where there is also an intangible asset in play the price will be determined by a combination of the cash flow and the intangible assets.
We have listed some intangible assets and areas that they are seen below. Does your business have any of these attributes? Would you like to acquire a business that has one of these?
Patents and Trademarks: Service companies, manufacturing, construction
Exclusive Territories or Distributorships: Wholesalers, vehicle dealers, franchise service companies, some restaurant franchises.
Closed franchise systems: Some areas, especially in California, are built out and no additional franchises can be opened.
Goodwill: Professional practices, restaurants, service companies, construction
Highly specialized or niche business: Manufacturing, construction, some service companies
Lifestyle business: Auto, boating, health, sports, recreational, children, amusement - type businesses. Often times buyers will pay a premium to make their passion their business.
Location: Restaurants, gas stations, car washes, service businesses. A poor location can be a liability. A good location is an asset.
Placing a dollar value on something that, by it's very definition, cannot be seen or physically measured is challenging. These assets alone cannot be the basis for the asking price for the business. After all, what is the value of a patented product that no one buys? What is the value of a restaurant that is in a great location but loses money? In most cases, there are always exceptions, intangible assets are secondary to the income a business generates. With that being said, intangible assets will usually help get a higher asking price and will help to get that business sold!
What business assets does your company hold? Would you like to know the value of those assets?
today and we would be happy to schedule a confidential, complimentary consultation.
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