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The First Component Of Value – Assets (Part 2 of 7)

1 January 2008 No Comment

The First Component Of Value - Assets

This one is pretty simple; it’s the stuff your business owns. At first glance you may think “That’s pretty simple; we get a valuation and that’s that.” True as far as it goes. A buyer is also looking down the road and is considering other things as well. Do you have the right assets? The right mix? Are they in good shape or will they need to be replaced soon? Have you purchased quality that will last a long time or skimped because you couldn’t afford it? You can begin to see how even the simple things have a large impact later and seemingly small decisions can create or destroy value when it’s time to sell. You may have just realized that some of those value decisions would also be affecting your operations and profitability right now. (You’ve also seen the first technique that buyers use to understand how you think and where they can get some extra leverage on you.)

That works well for the assets you can see on your balance sheet. What about the ones that you don’t even know you have? This happens mostly with intellectual property and other intangible assets (which sometimes account for up to 85% of the true value of a business!). “But I don’t have any patents, or copyrights, or trademarks”, you may say. Maybe not. However, you may have systems or methods, distribution channels, customer lists, designs, or other intangible assets that aren’t listed on your balance sheet, yet add tremendous value to your company. It’s a whole different discussion with the buyer when you properly identify and value those instead of having them thinking they’ve found another hidden asset they don’t have to pay you for.

What to do now:

  1. Understand your current asset base, especially physical assets that are important parts of your revenue generation.
  2. Identify any changes that should be made in type, amount, or quality of asset.
  3. Work with your CPA and banker to clean up your balance sheet.
  4. Do a complete IP audit and identify current and potential intangible assets that can be leveraged.
  5. Begin to codify and integrate IP into business operations to increase operational efficiency and profitability.

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