Donna Genie explains that traditional financial statements miss about 90% of a company's value for S&P-listed firms. She walks through intangible assets like trademarks, patents, customer lists, and SEO performance that sellers should document to show buyers the real worth.
When we look at the big picture of economics and the valuation of companies in the S and p in the US it's estimated that only 10% of the value is showing up in the financial statements for those companies. Because in the US based on gaap, we don't record or have any way to substantiate the current fair market value of the intangible properties that a business owns. So a trademark, a website, a patent, all of those items are intangibles and there is no way to truly value it. And valuations can fluctuate very strongly from any given moment to the next. So when looking at selling your business or purchasing a business, one of the things you will not be able to account for in a balance sheet or a standard business valuation is the intangible property of the business. The intellectual property that that business has needs to be listed out. So if you are selling your business, I recommend that you provide a supplemental listing of all of the intangible items that you offer for sale in your business. That intellectual property is very valuable, but doesn't really get routed into the valuation of your company. So list it out as a selling point. So for example, if you own a website and you get a very high volume of clicks or an SEO strategy that you have that has worked particularly well, those are very great, very valuable to a buyer. So you should list them out. Put some statistics about how many hits your website gets or visitors that you get where you rank on certain topics. That's very valuable. Also customer list. Customer list is not on your balance sheet. It's part of the goodwill of the business. But go through your data and make sure that you have great records of who your customers are. Keep as much of that big data as you can. So in your intangibles, list out how many customers you have, an email list that you may have segmented with the numbers of contacts in each one, or perhaps even the open rates of marketing efforts that you send to those people. If you are known in your area for being at the top of your business name for your local area in a topic or nationally as a specialist in an industry such as we are, you should list that on the intangibles, list out sort of award type things that you have, or why would people recognize you? Why are you better than your competition? Why is your business more valuable than theirs? List those out and provide that along with the sale of your business and you really use those as a new marketing tool. I think we're going to see as people put businesses for sale or buy businesses that this topic is going to come up more and more and you can be at the forefront by getting this list in line right now. So set up a list, a supplement to your financials that shows what you have that's of great value to others. If you were to sell your business, let us know what your tangible property looks like versus intangible and I think you'll see that the value of the intangibles is much higher than the tangible in many cases. I look forward to hearing how you're valuing things and what specific items you run into that you think would be a major value to a seller or to a buyer that is not listed in your financial statements.
I'm Donna Bordeaux from Calculated Moves. Please follow us on Facebook, Instagram and LinkedIn. Make sure you check out our blog and our website from the link below. Subscribe to our YouTube channel and hit the bell to be notified when we post. To contact me, email me@donnaalculatedmoves.com.
