When preparing to sell a business and considering its value, tangible assets like property, equipment, and inventory probably spring to mind first. While these physical items are obviously crucial elements of the sale price, intangible assets play a significant role in determining a business’s overall value. Intangible assets, though invisible, can be highly influential in the valuation process. If you’re a business owner aiming to maximise your return on selling, understanding and leveraging these assets is essential.
Examples of intangible assets include:
- Brand Equity: The value associated with a brand’s reputation and recognition in the market.
- Intellectual Property: Patents, trademarks, copyrights, and trade secrets that provide a competitive advantage.
- Customer Relationships: Long-standing relationships with clients that ensure a steady stream of revenue.
- Goodwill: The positive perception and trust the business has built over time.
- Human Capital: The skills, expertise, and experience of the employees.
- Technology and Processes: Unique technologies or processes that differentiate the business from its competitors.
Intangible assets are important in business valuations as they can significantly enhance the overall value of your business. They often represent the potential for future earnings and growth, making them attractive to savvy buyers. For example, goodwill and brand equity is an intangible asset that can position your business favourably on the market, attracting premium offers from buyers. Alternatively, loyal customer relationships translate into repeat business and stable revenue.
It’s unsurprising that valuing intangible assets can be tricky due to their non-physical nature. Business brokers may use several methods to estimate their worth:
- Market Approach: This method compares the intangible assets to similar assets that have been sold in the market.
- Income Approach: This approach estimates the future income that the intangible asset is expected to generate and discounts it to present value.
- Cost Approach: This method calculates the cost to recreate or replace the intangible asset.
So, what can you do to ensure your intangible assets are best represented when the time comes to sell? Making a comprehensive list of all intangible assets is a strong place to start. This list may include trademarks, customer lists, and evidence of brand strength. Engaging the help of a professional business broker who can provide an accurate valuation and guide you through every phase of the sale process is also paramount. Business brokers will know exactly how to highlight your business’s intangible assets to buyers, positioning your business as an attractive investment.
Ultimately, understanding and valuing intangible assets is essential for business sellers looking to achieve the best possible sale price. These invisible assets are often the backbone of a company’s success and future potential. By recognising their importance and accurately assessing their worth alongside a qualified business broker, you can better position your business in the market and attract premium buyers.
For more detailed advice on selling your business and understanding its true value, contact LINK today.
