Illustrating Company Value
If I want to know how to show my company value, what do I do? What makes up value? Value is a term thrown around these days, from fast food menus to diamond commercials. More than commercial puffery, value is a real way to determine what your business is worth to investors and potential buyers alike.
There are numerous ways to measure value. Value of a business is a cumulative total of both hard assets and intangible assets such as human capital and intellectual property. It is easy to show a dollar value for assets such as equipment and real estate but extremely difficult to quantify an amount for things like efficiency and business knowledge.
When you are illustrating company value, the first thing to do is record the fair market value (FMV) of all your equipment. FMV is the amount of money you would get for each piece of equipment if it were sold on the open market today. An average of similar items sold within the past year is a good way to assess FMV. This is usually roughly half of what you paid for the item but is still more than the depreciated value for items that have been in use for a number of years. In some cases, manufacturing equipment or vehicles may be so old that they are worth substantially more than was paid for them.
Next, determine if you own any proprietary information. Companies that own patents and routinely research and develop products will have more inherent value than companies that simply manufacture items. Valuation of this type of information can involve adding the amount of revenue previously generated by this information with anticipated revenue. This type of intangible asset can be worth more than all the equipment your company owns. Human resources are also an important part of a company’s intangible value. For more than the salary paid them, people who give their experience and expertise lend real value to a company. Imagining how much less your company would be worth without key employees will help you assign a dollar amount to having that person on your team. When you are illustrating value, provide detailed information about employee knowledge and how specific employees and departments have directly contributed to the bottom line. Priding yourself on hiring good people is a way to increase worth within your company.
Without customers to utilize it, the best employees and information in the world are worth very little. A good customer relationship management tool can help you compile customer information and determine how many and what type of customer utilizes your business. While you will have already accounted for the revenue they provide, your customer list is an item of value all on its own. Be sure to keep this information safe, as customer lists are full of personally identifiable information and the loss of this material could mean the downfall of your business.
