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How Much Is My Business Worth?

By Generational Equity

Thoughtful Businessman

“So just how much is my business worth?” is a question we get regularly when we meet privately with business owners at our exit planning conferences. Our answer is always the same: We have no idea until we do a thorough business evaluation on your company.

Although this answer does not please many who ask us the question, the reality is the steps we take to determine a company’s business enterprise value are very detailed and complex, and until our analysis is complete (which usually takes 60-90 days if a client’s financials are in order), we cannot possibly “ballpark” a company’s value.

But the real answer to the question of “how much is my business worth” is actually pretty straightforward:

The value of any business is what a willing and informed buyer will pay for it!

Ultimately, the market will determine your company’s value. Even after our analysis is complete, we often tell clients that are hoping for a higher number: Look, let’s take the business to market and see what buyers will tell us about its value.

You may be asking: Why would there ever be a variation between what your stated opinion of its value is and what buyers may pay for my business?

And the answer is simple: Your company has intangible, off-balance sheet assets that have value but the “value” of them will vary from buyer to buyer.

For example, Buyer A might be more interested in your blue chip client base, but Buyer B might be more attracted to your brand and reputation in the industry. Buyer C might be drawn to your tenured base of experienced employees and Buyer D might be more interested in your equipment and processes.

So, you see, your intangible assets, which by their very definition are nearly impossible to value numerically, could play a huge role in what buyers will pay for your company. And until you go to market, you really won’t know what your business is truly worth. Here is a partial list of some intangibles that can drive value:

  • Patents, Trademarks, or Copyrights – Depending on the industry you are in, these items can have tremendous value to certain synergistic buyers. The key is finding the right buyer who will pay a premium for the patents or trademarks that set your company apart.
  • Key Customers – This is especially true of those with whom you have long-term contracts. Often you see the value of your customers when you finally get paid for an invoice. However, the true value to specific buyers could go well beyond what you generate every month from these key customers. Often a buyer will pay a significant premium over a financial value simply to gain access to a solid, stable customer base.
  • Employees – Let’s face it, in many service-based industries your employees are the face of your company. If you have employees with long tenure, recognized experience, and solid credentials, some buyers will be willing to pay a premium for your organization in order to gain access to this talent.
  • Processes & Procedures – If you have been successfully manufacturing a product or providing a service for several years, chances are good that you have developed specific time-saving and cost-saving procedures and/or processes. These can be extremely valuable to key buyers.
  • Unique Products and/or Services – You are so close to your business, running it daily, you may overlook how unique your service or product is. In the hands of a larger player, with capital to advertise and market this fact, your company could grow dramatically. Key buyers who recognize this will pay more for this off-balance sheet asset.
  • Location, Location, Location – This old saying isn’t applicable only to retailers. You may be located in a part of the country that another industry player may want to enter. In a case like this, having an established organization where you are will be very attractive to many buyers located far from your business.
  • Equipment – This may have intangible value to certain buyers. Chances are good that if you are in a capital-intensive industry, the value of your equipment has been fully depreciated. However, if you are like most middle-market manufacturing entities, you have probably customized your equipment to make it function better and/or produce more. If so, to certain buyers, having access to this customized equipment could be very valuable.
  • Proprietary Lists — Proprietary lists can include customer or client lists, patent lists or even mailing lists, whether they are made up of customers or prospects. Lists can be especially valuable to a business if the relationships they represent are ongoing. Consider, for example, a magazine’s list of advertisers. The magazine may get 75% of its advertising revenue from the companies on that list. Therefore, the list is critical to the magazine's future profitability.
  • Beneficial Contracts — Long-term contracts can add value to a company. For instance, a company may have a contract that allows it to sell its product or service for a higher-than-normal markup. Or it may have a contract that allows it to purchase or lease items at a below-market rate.
  • Patents & Applications for Patents — How much the patents are worth depends on the strength of the patent claim (which can be difficult to determine if the patent hasn’t withstood litigation) and the patent’s economic and legal life.
  • Copyrights — Copyrights are trickier to value than patents because, while they may have a long legal life, their practical value may only last for a short period. This is especially true for technical works that become dated quickly. The value of a copyright also depends on the author’s previous success.
  • Trademarks and Brand Names — If a brand name or trademark lets a company sell its products for a higher price or in greater quantity than its competition, it has value.
  • Subscriptions and Service Contracts — Subscriptions are especially important for newspapers, magazines, and cable companies because a large portion of their revenues is based on subscriptions. With both subscriptions and service contracts, the longer they have been in effect, the more they are worth.
  • Franchise Agreements — Franchises with long track records and well-recognized names have significant value over newer, less known franchises. This is especially true in some industries (such as the hotel industry) that are dominated by franchises.
  • Software — Many companies have developed proprietary software specific to their businesses. If this software provides efficiencies and benefits that the business wouldn’t have without the software, it is a separate asset.
  • Goodwill — Goodwill means many things to many people, but generally it refers to intangibles like reputation, brand name, and location that lead to repeat business.

Keep in mind that this is just a partial list of off-balance-sheet assets that can add value to your business. And again, the “value” of these will vary from buyer to buyer.

Here is the key: You have to get your opportunity in front of as many buyers as you can so that your intangibles are marketed correctly. And, you need the help of an experienced M&A firm to “package” and present your business in a way that will help buyers clearly see what you want them to see in your company.

And this is really why Generational Equity has been one of the leading middle-market M&A firms in North America for years and years. Our team of deal makers is comprised of very experienced people, who have the proven ability to attract the optimal buyers to our clients. This is an art and a science but requires ultimately the ability to understand what buyers really value.

If the concept of off-balance-sheet assets and intangibles that add value to your business are intriguing to you, then you really need to consider attending a Generational Equity exit planning conference soon. We have designed these to be highly educational for business owners and enable them to learn a significant amount of information about, not only intangible assets, but also all the key steps involved in closing an optimal deal with an optimal buyer. Here is what a few of our clients have to say about the benefits of attending one of our conferences:

So, if you have no exit plans in place and have no idea where to begin formulating them, attending a Generational Equity exit planning conference is a must. To learn more, follow these links:

And don’t forget the answer to this question:

How much is my business worth? Plenty to the right buyer!

By Carl Doerksen, Director of Corporate Development at Generational Equity.

© 2021 Generational Equity, LLC All Rights Reserved

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Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.
Pete L.
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Terry D. Wickman, President, Keytroller
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.
Jay Dinnison, Owner of Sharpe Mixers
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Through the sale process, Generational brought in several interested buyers and we closed in about 6 months. I am so glad I accepted that invitation to the conference and could not be happier with the whole process. The team at Generational coupled with their knowledge and guidance was so valuable that in the end, I know I could never have done this on my own!
JoAnn Ellis, Owner of Fondren 5 Star Kennels
The professionals at Generational Equity then helped develop a roadmap for enhancing the value of the firm and an evaluation report. This was completed by June 14, 2021. We then developed the Confidential Information Memorandum and put Taylor Studios, Inc. on the market by July.
Generational Equity’s professional staff helped me every step of the way. Their network and professionals are the only reason I sold my company this quickly. For me this is a once in a lifetime sale and I was unfamiliar with the process. I was able to lean on them with questions and concerns.
Betty L. Brennan, President, Taylor Studios
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.
Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
I wanted to take this opportunity to thank you for all that you have done for us. Not only did you take care of all the aspects of the sale but took extra care to make sure we knew what it looked like every step of the way. I will definitely recommend your company to anyone that is in a position to or looking to exit their business.
Shane and Johanna Kline, Owners of Vision Upfitters
I decided to attend the conference and hopefully receive some guidance on how to structure an exit plan of my business. Upon arriving at the conference, I was so impressed with the presentation given by Generational Equity that I set a future appointment that week to discuss the possibility of selling my business with their Senior Managing Director David Robinson.
JoAnn Ellis, Owner of Fondren 5 Star Kennels
I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!
Eric Erlandson, Owner, Action Fastenings, Inc.
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).
Bil MacLeslie, CEO, ipHouse
The most important contribution I think Ahmad made was with his personality and work ethic. He is sincere, efficient, and very hard working. He was available to me at all times, whether it was for specific detail of the negotiation or just to talk through the bigger picture. He listened, advised, and recommended, but never forced his idea or opinions. In the time we worked together, he became a valued colleague and also a friend.
Salvo Stoch, Founder and CEO of Sleeping Partners
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.
Andy Graham, Vice President, Modern Heating & Plumbing
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.
Ralph Noblin, President of Noblin & Associates
Thanks to you, the entire GE team and especially Michael Goss for driving a great valuation, coaching me and driving the process across the finish line. Please let me know if there is anything I can do to support GE going forward.
Tom Currier, Former President & CEO, Rackmount Solutions
We had the pleasure of working with Mr. Ahmad Behjati Managing Director, M&A, for Generational Equity during our acquisition of Papa's Dodge in late 2021. Generational Equity and Mr. Behjati represented and marketed Papa’s Dodge. As our primary contact, Mr. Behjati was professional in every facet of this acquisition process, conveying valuable advice most times and assisting us in every step of the process.
Rick Greene of Dobbs Equity Partners LLC
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.
Bil MacLeslie, CEO, ipHouse
We were represented by Michael Goss with Generational. The due diligence was grueling and exhausting, but Michael propped us up and kept us motivated throughout the process. Debi and I continued to ask each other how we could possibly make it through this process without the assistance of Michael. Michael's professionalism and knowledge is absolutely amazing, and we are so blessed to have had him by our side as we made our future dreams come true.
Bob and Debi Lee, Owners of BL Technology, Inc and BL Tl Services, LLC
We thank you Eric and Generational Equity making our dream come true.
Larry Moore, Owner, A Company Portable Restrooms
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.
Robert Evans, President and CEO of Mealtracker Dietary Software
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.
Larry Moore, Owner, A Company Portable Restrooms
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.
Robert Evans, President and CEO of Mealtracker Dietary Software
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
After attending a conference with GE, I decided that the value they bring would be worth the expense and as soon as I started working with them, I realized that was the right decision. When we started to get LOIs, Fred Zweifel took the lead on the communication and supported negotiations throughout the process, which got tricky as we moved forward. I learned that it can be common for companies to make a great offer then work to erode that price with their discoveries, but Fred and the GE team kept that from happening.
Caroline Connelly, CEO, OptoTest
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.
Terry D. Wickman, President, Keytroller
Generational Equity’s assistance was invaluable in compiling and marketing our business.
Bil MacLeslie, CEO, ipHouse
T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.
Bryan D. Horn, Owner, Over Under Clothing
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.
Jay Dinnison, Owner of Sharpe Mixers