Hidden Value: Often-Overlooked Assets That Can Boost Your Valuation

Company valuations are a vital part of business sales, as they determine market value. Any buyer showing interest in your business will want the most accurate idea of what it is worth.

The valuation process is a comprehensive analysis of a company's strengths and weaknesses. It studies all aspects of the business, including assets, liabilities, working capital, products and services, the sector lifecycle, and current economic conditions.

But what are some often-overlooked assets not on the balance sheet that can strengthen a valuation?

Real Estate

Real estate can be a major source of hidden value. These assets are often underreported on balance sheets. This includes ownership of land. Prime property can be an especially valuable asset. When a business buys real estate assets, the purchase price is included on the balance sheet. However, the market value of that real estate can increase significantly over time, so it will need to be reassessed and accurately reflected in the financial documentation used for valuation.

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Intellectual Property

Another very important yet often overlooked asset is intellectual property (IP). This includes trademarks, patents, copyrights, and innovation secrets. IP rights are exclusive to your company, offer proprietary advantages, and can create sustained income streams. These intangible assets also include a strong branding and marketing presence. A recognizable brand with a loyal customer base is a very valuable asset. These can include logos, brand names, artwork, taglines, and designs. Some IP assets may be subject to amortization because they lose value over time, while others are considered perpetually valuable. An M&A expert can help to uncover your most valuable IP assets through the due diligence process.

Commodities

Some companies operating in the commodities sector may have exclusive rights to mines. The current value of the mine is important, but there is future earning potential that can significantly increase its value. This can be based on the value of the commodity, such as gold, silver, or gas. Commodities can be volatile, but they can also protect against inflation.

Customer Loyalty

Another important hidden asset is a loyal customer base. When customers trust a business, they are more likely to re-engage with it to try new products or services. This is a key growth opportunity. And it takes years to build strong customer relationships, so having these relationships in place for a long time is a valuable asset because it shows your business is likely to continue succeeding and already gives it a built-in advantage.

Workforce and Culture

In addition to strong customer relationships, your company’s workforce and culture are important hidden assets that don’t appear on the balance sheet. Key talent retention and happy employees are aspects that create value by offering greater reliability, efficiency, and better results. If your company boasts low turnover rates, it is a sign of a well-run organization with strong management at the top.

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Data and Cybersecurity

The value of data and cybersecurity is also not reflected on the balance sheet. Each helps deliver more value by possessing more intelligence. Especially in today’s economy, data is everywhere, and whoever has more of it wins. Data is also used by companies to create more innovative products and services, thereby delivering greater value. Having strong cybersecurity systems in place to protect the data is also important. The stronger the security is, the more value can be extracted.

Artwork

Artwork is often an overlooked asset. If your company has purchased valuable paintings, sculptures, or other works, it can be seen as a stable investment that offers substantial returns over time. If you are including this artwork in the sale of your business, the value must be reflected in the valuation process.

No Owner Dependency

Something that isn’t a hidden asset but is more of a hidden problem is owner dependency. If your company cannot run without you at the helm, it is a valuation problem. This is because once the company is acquired and you are no longer in charge, the business's profitability is likely to decline. You should make sure your company can thrive without your constant involvement. This requires having a solid operational framework in place. Elements of this framework include automation systems and tools, clear job definitions, and well-documented processes. These elements all can be considered valuable hidden assets.

Again, an M&A expert can help you pinpoint all your hidden assets and ensure they are included in your company valuation. Almost all businesses have hidden assets. But overlooking them can result in you leaving money on the table in a transaction—something that you certainly want to avoid in the sale of your company that you’ve worked so hard to build.