Whether you're looking to sell or to attract investment capital, being able to identify the hidden value locked within your business is important.
This article is a great starting point for finding this value so that it can be assessed:
The Crown Jewels Of The Business
By: Marc Kramer, The Bulletin
08/10/2007
Most small business owners don't understand all of the valuable assets
their business has beyond the cash in the bank. They don't realize the
array of assets they control that have a value beyond what those assets
do for their own business.
Forget computers and other office equipment, which typically lose value
as soon as you buy them. Here are 15 assets your business may own that
could increase the value of your business or at a minimum provide you
with additional income.
1. Customer List: The list of past and
current customers the business has done or is doing business with. This
list is valuable only if the business is scrubbing it at least every
six months. I once acquired a business with a list of a 1,000 past and
current clients. When we went to market to this group, we found that
only 20 percent of the list was good.
2. Name: Most people know
that names like Google, AT&T and American Express have tremendous
value. Yet local respected names have as much value. Many of us are
familiar with local restaurants, regional breweries and service firms
whose names are as highly regarded as national firms. In Panama, there
is a restaurant called Napoli's that serves hundreds of people six
nights a week. It is the most well-known and respected Italian
restaurant in the country. Anyone who buys it and keeps up the quality
has bought a license to print money.
3. Process: A unique process
for developing a product or delivering a service has tremendous value.
Think of Google's process for delivering ads to their Web site. If you
want to think smaller, a company in Pennsylvania called New Pig has a
process for putting kitty litter in a stocking that absorbs oil spills.
4. Employees: The understanding and unique skills of a business'
employees are an asset, especially in a professional service business.
One of my clients developed a 25-person business that markets products
and services for pharmaceutical companies. All of his employees had
worked in marketing for major pharmaceutical companies. When he decided
to sell the business, four of the 10 largest advertising firms in the
world offered him a substantial premium over the normal sales multiple
that most marketing firms sell for.
5. Building: The property you
own may have multiple values, ranging from location to zoning rights. A
local manufacturer in my hometown had an old building that turned out
to be a good location for a supermarket.
6. Lease: A client of mine
had signed a long-term lease that had allowed him to sublease his space
if he so chose. His business was on a respirator and he didn't have the
energy or interest to fix it, and no one showed an interest in buying
it. Because the lease still had another five years to run, he had to
keep the business alive just to pay the rent. The demographics of the
region were changing, as more upscale businesses were moving into his
area. One day, a site location specialist from the local economic
development organization asked him if he had any interest in selling
his lease. He subleased his space at a substantial profit and was able
to sell off his business.
7. Patents: Everyone knows the value of
patents, but some companies patent products or processes and never find
a use for them. Yet someone, somewhere, may find a use for them. I once
did work for GE Investments, and the GE people told me that the
inventor of the slinky worked for GE. GE didn't know what to do with
the spring their researcher invented, so they allowed him to buy it for
$600. As most people have owned at least one slinky, they know that
patent was worth billions.
8. Trademarks: A client of mine has a
trademark that a major company wants to own. It turns out that the mark
may be worth more than my client's entire business.
9. Domain
Names: A client of mine bought hundreds of domain names that would
attract individuals looking for a mortgage. As the mortgage market
declined, so did his business. One day, one of the biggest mortgage
banks in the country came in and made him an offer of millions of
dollars for all of his domain names. My client knows that the mortgage
business is cyclical, but the amount that was offered allowed him to
retire.
