Originally published by Jay Polimeno on Apr 13th, 2007
When the time comes to sell your business, in basic terms you, as a seller are looking to get the highest possible price for your business based on the value of its tangible and intangible assets. Tangible assets…they’re easy to value. Intangible assets…they’re a bit more difficult to value, especially if you are having a difficult time coming to terms with the “emotional value” that you have calculated on your own. The value you place on the blood, sweat, and tears you’ve invested in the business does not easily translate into value for a potential buyer of your business. If you truly want to know the market value of your business, have a Certified Business Intermediary help you to step back and realistically calculate the goodwill value of your business. It is necessary to clarify the difference between the “blue sky” value that you feel your company has and the actual goodwill value that truly exists. If the divide between “what you’d like to get” and “what you can get” is too wide, you will not sell your business.
“Blue Sky” is a perceived value that cannot be quantified or calculated…it is the, “what I’d like to get, because that’s what I think it is worth”, with no basis in market reality. “Goodwill” on the other hand, is that portion of justifiable business value that exceeds the value of the tangible assets. Goodwill arises as a result of name, reputation, customer patronage, location, and product or service. They are assets that have not been separately identified and/or valued but which generate economic benefit. Goodwill represents what can be substantiated as the value of your blood, sweat, and tears…what you have put into your company, what you have created as your own market niche, and the reputation you have earned in your industry and marketplace.
Other intangible assets your business may have which impact the value of your business are customer lists, drawings, intellectual property, and patents. Each of these assets is not necessarily considered part of the “goodwill” equation, but they do certainly have value.
In some cases, the value of your business may only be the value of its tangible assets…land, buildings, furniture, fixtures, equipment, and inventory. The best way to determine this is to consult with a Certified Business Intermediary who will assist you in digging into your books to find every conceivable intangible asset of your business that will translate first into value and ultimately into money for you. Even if the outcome is that there is negligible “goodwill” value, and your business is worth the value of its tangible assets, at least you will be confident that you’ve looked everywhere you could for value, with the assistance of a professional trained to find virtual needles in haystacks.