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Business Valuation = Tangible Assets + Goodwill

Valuation of a business (large or small) comes down to forecasting its future cash flow. When the business is sold, the seller and buyer have to agree to how to allocate the valuation between tangible asset value and goodwill (intangible asset value).  

Since goodwill is subjective, there is a risk of overvaluing or even undervaluing a company’s goodwill. Therefore, it is a mistake to try to value goodwill.

Instead, you determine the market value of your tangible assets, then subtract that number from the agreed-upon purchaser price—the difference is called “goodwill.” This allocation is important when determining tax obligations of the seller and how the purchase price will be depreciated in the future by the buyer.

If you’re selling your business or plan to in the future, one thing is for certain: the valuation process is complex. That’s exactly why you need a realistic, market-based valuation done by professionals experienced in the process.

When we perform a business valuation, factors that we take into account include:

  • Cash flow history
  • Cash flow projections
  • Quality of assets
  • Quality of the brand (goodwill)
  • Recent comparable sales
  • Relative supply & demand of businesses for sale relative to capital looking for businesses to buy

Get a quick, informal estimate of the value of your business using our “Know Your Value” calculator on our website, which you can find by clicking here.

Getting Help with Valuation

Understanding valuation is an essential part of your business’s sale process. Get a handle on this by speaking to the experienced professionals at Tennessee Valley Group, Inc.

Learn more by contacting us today at 615-390-9966.

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Tennessee Valley Group

Jim Cumbee established Tennessee Valley Group to help business owners fulfill their dreams for life after business ownership. It’s a mission that his 30+ year career history had prepared him well for—in addition to being an attorney, transition mediator and business broker, Jim has been a buyer, seller, and entrepreneur. His broad range of experience gives him unique insight into how business buyers and sellers can achieve their goals.

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