The triad of brands, goodwill, and know-how has no slots in financial statements, and therefore tend to be left out in formal business valuation. Yet, they can spring nasty surprises on an investor, and leave a seller in hopeless recrimination as well!

The value of brands is relatively well known, but finance professionals, who generally lead business valuation exercises, are usually at a loss to discern trends in rank, image, and margins. You might think that accountants can apportion contributions to individual lines of revenue, but there could be many operational realities, such as the time of sales people, which are misleading in business valuation exercises.

Even the most qualified and experienced professionals can be guilty of subjective bias when it comes to the goodwill aspects of business valuation. It may appear wasteful at first sight to invest in an objective survey with a duly stratified sample, but a reliable basis for estimating the effect of goodwill in business valuation can prevent costly and irreversible mistakes.

Overly enthusiastic backers or opponents of a specific business valuation exercise may try to use benchmarks and market precedents to support their points of view, but your capital deserves more specific proof!

Know-how is perhaps the most elusive of the drivers of commercial worth, which weigh down efforts to determine the true worth of an enterprise. Technologists in dark corners of a company may not only substitute weak in-house processes, but represent enormous potential if deployed effectively.

This sword has two edges, because key people may leave after a business changes hands. You can be sure that top guns will lobby hard to save their jobs, but the real value may reside in the engine room of your proposed acquisition. Due diligence should never leave out distant sites and the ‘innards’ of an organization.

Filed under: Business Valuation

Like this post? Subscribe to my RSS feed and get loads more!

Possibly related posts

Related Entries

  • No Business Valuation Makes Sense without a Sensitivity Profile - It is not a mere truism that ‘no one knows the future for sure’ when it comes to business valuation! Do not allow zealous defense of point estimates and forecasts sway you, because if something can go wrong, it probably will! There are no financial gains in revengeful performance appraisals, and the authors of that horribly
  • Unstated Assumptions in Business Valuation - Business valuation proposals are generally prepared by domain experts. They know a sector of industry and a function of management so well, that they often do not ask basic questions. They overlook, by the same token, changes in conventions to which they have become accustomed. A professional who knows the path through thorough investment analysis may
  • The Contingency Planning Chapter of a Business Valuation Report - Contingency planning limits business valuation success. Actions have to be timely, coordinated, and effective, when plans made on paper, go wrong at ground zero. Business valuation can become quite useless if an organization does not detect signals of danger early enough to contain damage. The risk management approach promotes a culture which safeguards precious capital resources. Business
  • How Does Business Valuation Affect Your Fixed Commitments? - The most attractive business valuation is a trap if its pushes up your head count. Conditions tend to change, but people, especially the ones you no longer need, do not go away for free! Countries with militant labor are the worst in this respect. You could be saddled with armies of blue collar workers who drag
  • Business Valuation Opportunity Costing - There must be alternative uses for resources other than the business valuation on your desk. Should you consider incremental values, qualitative factors, or toss a coin in secret? Every business valuation proposal teases the mind, switching between bewitching attractions and nagging doubts. There must be tremendous attractions, otherwise the business valuation papers would not have reached