The current climate is very challenging for many business owners. If you are considering securing investment, selling some assets or even closing down a business, here are a few tips to define the value of individual assets for a small business.
What is your business worth?
The process of valuing a business is not always straightforward, there are various approaches, and the same method will not work for all companies. The most frequently used methods are focused on income, i.e. sales and cash flow commonly used to value profitable businesses. Alternately a market value approach is when a price is based on similar companies previously sold or valued. However, an “asset approach” is more suitable for small and micro businesses.
Business Assets are items of value that your business owns that help operate or run the business. Typically, these fall into two categories, tangible and intangible, and can range from inventory to IP.
Defining assets can be challenging, particularly in the case of micro-businesses. However, the bottom line is always down to value. What would a potential buyer be willing to pay for what you are selling?
The value of a domain name can vary depending on a range of factors, such as brand value, through to search volume.
You may have a lot of buyer interest if you have an “exact match” domain name, such as organicveg.com, which matches an exact search phrase. Valuation tools such as Freevaluator and SitePrice can indicate the value of a domain. In addition, platforms such as Flippa provide a list of recently sold domains and the sale price.
A product-based business will have stock of some sort which will have a wholesale and retail value. However, there may be additional raw stock, such as surplus packaging and shelving. Capital equipment you use to operate in the day-to-day running of the business, such as desks and chairs, i.e., the majority of tangible assets, will have a re-sale value.
In the case of a service-based business or intangible assets, there may be contracts or policy templates, or courses developed, IP, Trademarks, copyrights, patents, and software.
One of the most valuable assets businesses have are the networks and partners it has relationships with, often including suppliers, customers, and contacts within each specific industry, usually built over a certain period, all of which could provide a monetary benefit.
Industry data or insight, market research, trade secrets, customer feedback and knowledge surveys can provide foresight, a source of competitive advantage, and valuable intangible assets.
These can include anything from video content to websites, social media pages, published articles, presentations and even blog content.
Below are a few examples of assets from experience valued and sold as stand-alone assets. Social media page: We knew a buyer would appreciate the value in purchasing this, as even if they wanted to adapt or amend anything, this could easily be done using advanced editing tools., giving them a base of established followers and fans of the brand.
Packaging: Bottles and jars used had changed over time to keep the brand fresh and in line with the re-brand. Packaging is typically purchased in bulk, so the business had accumulated a lot of stock that was no longer required. We were able to sell this to a company that purchased surplus stock.
Furniture: sold on Facebook marketplace.
Data: A supplier and contact list of textile manufacturers with experience in bespoke women’s clothing was sold to a company setting up a new business looking to build their knowledge within this sector.
To re-cap, although there are some standard approaches to establishing a company or asset valuation, the method you choose depends entirely on your business. We have given ideas on how to identify value using the “asset approach” and how attributing value to assets can enable a business owner to utilise them at various points within a business journey, from raising investment to closing or selling a business.
We hope you found this helpful insight. For further business support, please visit our websites for blogs, case studies and more.
Salma Chaudhry, Innovation Eco System Network Manager
Salma Chaudhry is an Innovation Advisor at GC Business Growth Hub.
In the 15 years she has been a business advisor, Salma has helped start-up businesses and supported established companies to identify scale-up and growth opportunities.
As well as her role as a business advisor, Salma has launched several businesses. Including an independent magazine and a fashion brand offering bespoke tailoring. Her most recent venture is an award-winning skincare and cosmetics company, which exports to several countries within the Middle East and Europe.
Salma works with her clients to achieve their aspirations, whether helping transform an idea into reality or serving as a sounding board. She offers practical advice and solutions to support businesses by utilising the business experience, knowledge, skills and networks built up throughout her working life.