Understanding the value of a small business is critical for owners. Yet many business owners consider value simply from a balance sheet perspective, assuming the reported level of net assets approximates the value of the business. While the reported net assets could be a meaningful value proxy for certain businesses in certain situations, more often than not this is not the case. Why? Because for a typical small business, intangible assets will not be reflected on the balance sheet.
The presence of one or more intangible assets in a business, such as the examples shown to the right, often result in enhanced earnings and cash flows, which can raise the value of the business over and above the reported level of net assets owned by the business. This additional value can be quantified by reconciling the difference in enterprise value determined under the Income and/or Market Approaches with the value of net assets under the Asset Approach.
Many owners take a reactive approach to valuing their small business, choosing to address valuation only when in dire need, such as a dispute or withdrawal from the business. However, by proactively addressing questions of valuation, small business owners have the opportunity to use valuation as a planning tool and long-term safeguard.
Want to know the value of your small business? Or gain an understanding of what drives its value? Consult a CPA with Accredited in Business Valuation Credentials, who can offer insight and opportunity tailored to your situation.
Aronson LLC’s Financial Advisory Services team assists small businesses in a variety of industries with valuation and M&A-related services. To learn more click here, or contact Steve Purdy or Bill Foote at 301.231.6200.