so what is the value of having no assets now think about the changes that have taken place
in business over the last decade or so the balance sheet of a good and
strong business of yesteryear might look completely different in today's businesses
intangible assets and goodwill now reigns supreme in today's economy
intangible assets and goodwill are now viewed with increased importance when completing
business valuations the transport and logistics sector provides a great example of how thinking
has moved in recent times historically a transport company with a fleet
of trucks was purchased based on the market value of the trucks now this is very rarely the case now
with most large transport transactions using a profit multiplier as the valuation methodology
the key reason behind this move away from using fixed assets as a driver for valuations
has been the bank's view that the businesses profitability and cash flow
is the most important repayment characteristic for any company from a banking perspective now
the same mindset is now prevalent in rural banking where historically the value of the land asset was
the key item in deciding whether to advance a bank loan today positive cash flow and profitability
are viewed as being more important and if those numbers do not meet the bank's repayment criteria
the land asset values become well largely irrelevant for mature and traditional businesses
goodwill is the cash flow generating ability of a company over and above their asset value
back to our transport example if a transport business is generating a million bucks of profit
selling for 4 million and has trucks worth a value of 2 million the goodwill value is
two million dollars the business valuation of four million is made up of two million of trucks that's
the fixed assets and two million of goodwill hence four multiple so think about this uber
the world's largest taxi company owns no vehicles facebook the world's most popular media outlet
creates no content alibaba the world's most valuable retailer has no stock has no inventory
airbnb the world's largest accommodation provider owns no hotels no real estate no rooms
so balance sheets once dominated with tangible assets such as property plant and equipment
now look very different so what has replaced it intangible assets brand content data know-how
confidential information design inventions innovation in short intellectual property
now banks relying on security from tangible assets such as plant equipment and real estate most of
which is becoming irrelevant to the businesses performance and now looking at the dominance
of goodwill profitability and cash flow and the ability to repay as being more important than the
underlying assets now when preparing a business for sale the priority needs to be generating
documents financial statements and forecasts that confirm and illustrate the profitability and
cash flow of your business a fixed asset list whilst important will play less of a part in
ascertaining the value of the business if you want the purchaser of your business to have
the ability to get bank funding they will need robust evidence showing the profitability and
cash flow of your company and the bank will then be less interested in tangible and fixed assets
there is a clear trend that new businesses are moving away from owning fixed assets
and instead are becoming experts in inventing innovating gathering data
implementing new processes platforms that generate an intangible asset value for their investors
thanks again for watching if you want to know more about business sales hit that subscribe button
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