How to Perform an Asset Based Business Valuation
Discover how to assess the fair market or sale value of your business's tangible assets as part of your exit strategy planning. Asset valuation plays a key role in determining business pricing during due diligence and is crucial throughout the entire business sale process. Excerpted from BizBuySell's Guide to Selling Your Business.
Transcript:
Conducting an asset valuation. Begin by listing all physical assets of your business. Make an inventory by going room by room, department by department or location by location. Group assets by type, such as office furniture, office equipment, production equipment, office furnishings, leasehold improvements, automobiles and so on, also noting the location of each asset.
For each asset record the date of acquisition, original cost replacement cost, and current fair market value, which is the sale value of the asset in its current condition.
Use the asset valuation worksheet in the digital toolkit as you create and value your asset inventory.
The form automatically calculates column entries. It also includes a column for notes regarding ownership, such as the amount of the purchase price outstanding, the cost of accompanying service agreement, and other costs of ownership. Access the digital toolkit by visiting bizbuysell.com/seller/guide/selling-a-business/
Be aware that the resulting asset valuation will differ from the asset value shown on your business balance sheet for two reasons:
- The balance sheet reflects the book value or carrying value of assets based on acquisition cost minus depreciation, while the asset valuation reflects the fair market value of assets, which in some cases could be even more than their initial price.
- The balance sheet reflects the depreciated value only of assets acquired at prices above a minimum value while the asset valuation includes the market value of all physical assets minus any liabilities associated with those assets.
Plus, also be aware that there are situations that may require asset valuations by an independent certified appraiser.