How To Value Your Business - Part Four

Let's look at the asset approach next.  Like the market approach, there are several specific models (methods) that are in this general category.  All of the methods restate assets to their fair market value (not book value, but what they could actually be sold for on the open market), and restate liabilities to their fair market value.  The latter may seem more obvious than it actually is.  For example, your business may have a loan with a below-market interest rate - this means the liability is actually lower, on a fair market value, than on your books.

After restating, you simply subtract the liabilities from the assets, and the difference is the net worth of your company.

The difficult part is in determining the fair market value of intangible assets.  These assets can include (but are not limited to) goodwill, established brand names, marketing, in-place trained workforce, policies and procedures, licensing rights, patents and copyrights, and many others.  These assets are not normally recorded on your accounting books, and there are numerous ways to identify and value these types of assets.  This is why this method is so difficult to apply.

Additionally, these assets and liabilities have to be valued as a group of assets and liabilities, as if they were sold as a single package and not as separate and distinct assets and liabilities.  This makes it even more difficult to assess the value of the company under this approach.

This approach and its underlying methods are most frequently employed in a valuation of a company in bankruptcy, and is not frequently used in the valuation of an ongoing operating company.

To learn more about this approach to valuation and to help value your company, please contact me.

B. Dane Byers, CPA, ABV, CFF
Bassett & Byers, P.A.
Partner
3701 Lake Boone Trail, Ste 201
Raleigh, NC 27607
(919) 303-1049
dbyers@bassettcpas.com