Assigning value is not straightforward when it comes to ‘intangible assets’ – intellectual properties that when valued collectively, for how they work collectively, are known as ‘business goodwill’.
Business Goodwill – the ‘sum that is greater than its parts’:
One of the most important factors in calculating the value of intangible assets is the ‘synergy’ between them -i.e. ‘how they work together’. It’s also how they, as a collective, work with tangible assets such as a great product, equipment or property.
- The product might be good, but the reason it sells is because 1. The name is catchy or 2. The company has a good reputation. etc. It might have greater value still thanks to a trade secret that means competitors can’t copy the product, and a copyright on the design, name, trademark etc. that gives it, or will give, market dominance, or security. However, take the ‘catchy’ name away? Or the business reputation? Or the copyright on the trademark?
- In some cases, the measurable value of the business goodwill (i.e. what the intangible assets currently to a business) can skyrocket in the future or after a sale or a single change that impacts on how the other intangible assets work together. The likelihood of that happening also needs to be ascertained to work out the true value of the business goodwill.
Valuing Business Goodwill:
You might be tempted to drum up a figure for your business goodwill, but there’s real risk that it could be either way to low (and so you lose out) or too high.
So, a particular valuation process should be followed. This involves arranging for a number of independent valuations. The average figure(s) from those valuations is then taken as the value of the intangible asset(s). This process would be taken on by an accounting firm that offers business goodwill valuations. TAT’s business valuation is a process and a set of procedures used to estimate the economic value of an owner’s interest in a business.
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