Acquiring a Company? Selling a Business? Understand the Value ...

Friday, August 08, 2014

Is your company in acquisition mode? If your company is in the process of acquiring other companies for complementary products or services or for strategic reasons, such as a strong customer base or to eliminate a competitor, then you should have the company to be acquired valued or have a quality of earnings analysis performed to ensure that your company is not overpaying for the business.


In recent years, companies have been entering into acquisitions without proper due diligence or obtaining an independent valuation of the business and after the fact they learned that the business was not worth the premium paid for the business.


Are you a business owner thinking about selling your business? If you are a business owner contemplating or in the process of selling a business, do you know the real value of the company? Most owners of companies believe that the value of their company consists of the fixed and tangible assets.


For many companies, the largest asset in the company is the intangible asset value. This value may consist of discrete intangible assets in the form of intellectual property (IP), proprietary processes, patents, copyrights, trademarks, brands, etc. Or the value may entail the non-discrete intangible assets in the form of professional or personal goodwill value that is generated by the company’s human capital. Many companies do not include intangible asset value in the purchase price when they list the business.


Before listing the business for sale and definitely prior to entering into a letter of intent to sell the business, have a business valuation performed on the business to understand the components that make up the value in the business. This will aid the business owner to better negotiate with potential buyers and have compelling support for the listing price. In other words, negotiate from a position of strength.


Don’t be a seller who leaves millions of dollars on the table because you didn’t understand the real value of your business.