When we look at the big picture of economics and the valuation of companies in the S& P in the U.S, it’s estimated that only 10% of the value is showing up in the financial statements for those companies. Because in the U.S, based on GAAP, we don’t record or have any way to substantiate the current fair market value of the intangible properties that a business owns.
So a trademark, a website, a patent, all of those items are intangibles, and there is no way to value them truly. And valuations can fluctuate very strongly from any given moment to the next. So when looking at selling your business or purchasing a business, one of the things you will not be able to account for in a balance sheet or a standard business valuation is the intangible property of the business, the intellectual property that that business needs to be listed out.
So if you are selling your business, I recommend that you provide a supplemental listing of all of the intangible items that you offer for sale in your business. That intellectual property is very valuable but doesn’t get routed into the valuation of your company. So list it out as a selling point. So, for example, if you own a website and get a very high volume of clicks or an SEO strategy that you have that has worked particularly well, those are very great and valuable to a buyer. So you should list them, put some statistics about how many hits your website gets or visitors you get, and where you rank on certain topics. That’s very valuable.
Also, the customer list is not on your balance sheet. It’s part of the business’s Goodwill, but go through your data and ensure that you have great records of who your customers are. Keep as much of that big data as you can. So in your intangibles, list out how many customers you have an email list that you may have segmented with the numbers of contacts in each one, or perhaps even the open rates of marketing efforts that you send to those people.
If you are known in your area for being at the top of your business name for your local area in a topic, or nationally as a specialist in an industry, such as we are, you should list that on the intangibles list out sort of award type things that you have, or why would people recognize you? Why are you better than your competition? Why is your business more valuable than theirs? List those out and provide that along with the sale of your business, and you use those as a new marketing tool. I think we’re going to see as people put businesses for sale or buy businesses that this topic is going to come up more and more. You can be at the forefront by getting this list in line right now.
So set up a list, a supplement to your financials that shows what you have that’s of great value to others. If you were to sell your business, let us know what your tangible property looks like versus intangible. And I think you’ll see that the value of the intangibles is much higher than the tangible. In many cases, I look forward to hearing how you are valuing things and what specific items you run into that you think would be a major value to a seller or to a buyer that is not listed in your financial statements.
I’m Donna Bordeaux from Calculated Moves. Please follow us on Facebook, Instagram, and LinkedIn. Check out our blogs and our websites from the link below. Subscribe to our YouTube channel and hit the bell to be notified when we post. To contact me, email me at donna@calculatedmoves.com.
Donna Bordeaux, CPA with Calculated Moves
Creativity and CPAs don’t generally go together. Most people think of CPAs as nerdy accountants who can’t talk with people. Well, it’s time to break that stereotype. Lively, friendly, and knowledgeable can be a part of your relationship with your CPA, as demonstrated by Donna and Chad Bordeaux. They have over 50 years of combined experience as entrepreneurial CPAs. They’ve owned businesses and helped business owners exceed their wildest dreams. They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.