Business Valuation Blog | Understanding Buying / Selling a Company

When a business valuation is conducted for your firm, its assets will be considered in the overall value. If your business appraiser determines that a strict asset approach is relevant to the overall analysis, they will look to understand the market value of tangible items such as cash, receivables, inventory, machinery & equipment, buildings, and land.

If your business is in an active and operational condition, the value of its intangible assets will also be considered. These can include domain names, patents, copyrights, licenses, customer lists, client relationships, non-compete agreements with prior employees, a trained workforce, guaranteed contracts, leaseholds, and general goodwill.

These intangible assets are generally more challenging to estimate value for, as they are not typically itemized on your balance sheet, and need to be reviewed separately to determine a reasonable approach to appraising. The business appraiser will want to review as much internal data as you can make available so they can consider these intangibles as part of the revenue that continues to drive the business. It’s reasonable to look to carve out a value for these intangible assets based on their particular impact on the overall value of the business. The appraiser can provide guidelines to assist in developing historical data and potential growth in the company as a way to measure this in a finite manner.

>As an example, certain contracts and existing client relationships can likely be attributed directly to consistent and tangible revenue the company has experienced over the years. A newly signed contract may open a pathway to future growth that can be measured based on the terms of the deal.

In summary, when completing a business appraisal under an asset approach, it is important to measure the value of all the assets in the company, both tangible and intangible, to gain a complete perspective of the overall value for your business. Working with your appraiser to develop reasonable measurements to value these assets, will result in a credible and reliable outcome.

When you’re considering obtaining a business valuation to purchase, sell, refinance or buyout an investor in your company, or for any other reason, it makes sense to obtain a tangible asset appraisal to accurately assess the market value for your owned equipment and real property.

Quite often, business owners will have capitalized a significant amount of tangible asset cost as part of their operations for depreciation and tax purposes, however, years later, when it comes to updating the overall company value, they assume the internal net book dollar amount on these assets is a fair representation of actual market value, which in many cases is not accurate and could potentially result in money left on the table.

If a current tangible asset appraisal is not available in a business valuation, the certified appraisers will need to use the net book value of these tangible assets as reflected on the company’s financial statements, as this is the only available source of data. These net book values may be substantially different than the actual market value of the equipment and real property, which would create inequities in the appraised value of the overall business. Having a true understanding of all these important components of your company will allow you to make sound decisions going forward.

When completing a business valuation for any company, it is important to properly allocate the value to both the tangible and intangible assets of the company based on current market conditions, which will then gain you a full perspective on how to approach sale, purchase or refinancing opportunities.

The appraisers at Business Valuation Specialists (BVS) can discuss this issue with you during the valuation process. We have tangible asset appraisers on hand through our sister company Equipment Appraisal Services (EAS) as well as strong relationships with real property appraisers. Obtaining a business valuation appraisal together with updated equipment and real property appraisals will provide you with a full and complete picture of your business’ actual total worth allowing you to make highly informed business decisions with confidence and provide a competitive advantage.