How To Boost Your Company's Value: Mind the Intangible Assets
Mention business “assets,” and most people think of actual physical items, such as equipment and real estate-;things that are tangible. But intangible assets--such as copyrights, trademarks, a brand, a solid reputation--play an important role in the valuation and sale of businesses.
In fact, all nearly all businesses, even those that exist solely in cyberspace, possess intangible assets. And if you’re selling your company, it’s critical to leverage such assets to both increase your own value and make your company more attractive to buyers.
Assigning value to intangible assets is also challenging. There are several different methods for estimating the worth of intangibles. With so much on the line, most sellers will be well-served to consult a business broker or professional appraiser rather than trying to value intangible assets on their own. However, there are several things you can do to highlight and improve the value of your company’s intangible assets as you prepare to sell your business.
Identify Your Intangible Assets. In the months leading up to a sale, sellers typically conduct an inventory of equipment, real estate, and other physical assets. But savvy sellers also include intangible assets in their pre-sale inventories. This list can be extensive. In addition to intellectual property, it’s important to consider the value of contracts, agreements, partnerships, customer relationships, Internet domains, brand recognition, and more. Essentially, any non-material asset that contributes to your company’s success has the potential to boost its value.
Document Such Assets’ Impact For business buyers, the value of an asset is limited to its ability to generate bottom line outcomes. This is especially true when it comes to intangible assets, since many intangibles don’t have value beyond the context of the business itself.
By documenting the impact of intangible assets, you can demonstrate their worth to prospective buyers. For example, loyalty metrics illustrate the value of customer relationships. Sales tied to proprietary processes show the dollar value of specific pieces of intellectual property.
Standardize Systems and Processes Intangible assets tend to be unique business elements and can intimidate buyers who are unsure whether or not they will be able to leverage them to achieve similar results. So as much as possible, try to standardize and document the use of intangible assets, highlighting how they are integrated into processes that rely on key employees, tangible assets, and other resources that will exist after you have exited the business.
Develop Your Intangibles Depending on the timing of your sale, it may be possible to create new intangible assets as well as increase the value of intangible assets that already exist. You can also make intangible assets more tangible. For example, if you have a proprietary process that differentiates your business from the competition, it may be beneficial to secure a patent for it before you list your business in the business-for-sale marketplace. Poof: something intangible becomes tangible.
Of course, some intangible assets are more valuable than others to prospective buyers. To avoid investing time and resources in intangibles that may contribute little to business value and sale price, consult a business broker early in the process.