Valuing Your Business

If you had to sell your business today, would you know how much it is worth? Would you know how much your business is worth if you needed a loan? How about the value of your business so you can take on a partner?

Talk to the Experts
Understanding the dollar value of a company is crucial to business owners, who may have an outsized portion of total wealth tied up in their companies. But the process can seem daunting to the uninitiated.

Begin by talking to a tax professional who is experienced in this area, or consider hiring a valuation expert with credentials from the American Society of Appraisers, the Institute of Business Appraisers or the National Association of Certified Valuators and Analysts.

Tangibly Speaking
While there are a variety of valuation approaches, they all quantify tangible assets. This is basically a company’s net worth, which includes ownership of physical assets such as machinery, equipment and work space. As with personal net worth, you would also subtract liabilities, including outstanding loan balances and depreciation.

Intangible Assets
While calculating the value of tangible assets is relatively straightforward, determining the value of intangible assets might take more doing. Intangible assets include things like copyrights, patents, licensing, franchise agreements, and goodwill.

Goodwill
Ultimately, reputation can make or break a company’s long-term prospects, and goodwill includes the components that affect that reputation. Goodwill includes your company’s standing among customers and peer firms. It can include the quality and experience of your workforce and relationships with suppliers.

Establishing Value
Add both tangible and intangible assets to your firm’s balance sheet, which lenders, partners and future buyers may use to determine its value. It can show you areas like inventory purchases where you can increase value, or it can identify areas such as liquidity ratios that might detract from value.