Article: Value

Value: Does Your Business have it?

If your business has been operating for more than three years and the business is profitable, then it has value.

There are many types of business value. Market value, fair value, liquidation value, replacement value, cost value, and reproduction value are but a few types of values.
Market value is the type of value referred to in this article. Value is not the same as price. It has been said “Price is the amount you give or receive; value is what you hope to get.”

Customers:

Do you have repeat customers? Do you keep a list of customers? Do you have accounts receivable? There is value in established customers which already know about your business and product. A potential business purchaser will not have the new business expense of advertising and marketing to build a customer base. You have paid the price to carve out your market niche. The knowledge you have about your customers or clients is valuable to a business buyer.

You may have “paid the price” to learn this information for yourself. This information has value.

Location:

Business locations have value. The location is known to current customers and as creatures of habit, customers do not want to find a new location. This is especially true of retail and some professional businesses. Necessary leasehold improvements are already in place with business equipment for continued operations. The market value of used equipment and furniture is usually much less than new cost. But again, it is in place and operating. Necessary utilities are in place for operation of the business. The current location would be in compliance with zoning regulations. It is also likely that your business occupational license is transferable at the same location. Your established operating location has value.

Income:

What does a business purchaser look for when buying a business? In other words, what makes your business valuable to a purchaser? Profit, income, cash flow, owners benefit, sellers’ discretionary cash flows are all ways to describe income to the owner. There are many methods for an owner to take income from a business; salary, auto use, health insurance, net income, etc. For income to have value it must be provable. “Other Income” that cannot be substantiated has no value in a business sale. The value of a business has a direct relationship to the owner’s income generated from that business. Income to the owner of a business is the most important contribution to value of a business. All that you, as the owner, have done to properly manage your business is reflected in the “bottom line.” Your current and past provable owner’s income have value.

Business Value Planning: Value Planning for the small owner/operator business may maximize a sale price for the owner. Value Planning is a process to be included in the operation of a business before it is offered in the marketplace for sale. There are many reasons to sell a business. Retirement, “Burn-Out,” illness, relocations of family are all good reason for the sale of a business. Decreasing sales or decreasing profits are not good reasons to sell a business. It is important to contact a business professional early in the decision process as a business should be placed on the market before the owner loses interest in the progress of the business.

In addition to any tangible assets, such as inventory and equipment, the value is a return of your “hard knocks” investment and your “ know how” of the business management experience that is transferable. An established profitable business has value for both the current owner and a prospective purchaser.

(Condensed reprint of an article published by Small Business Resource Network at UNF-SBDC)