Page 18 - MIND YOUR ASSET

ANTHONY KAIRUZ

3. Valuing a company based on assets

Many businesses are sold under less-than-ideal conditions. What if there are no profits or cash
flow? What if the owner passed away suddenly, and there is high financial risk for a new owner
taking over? In these cases, assets may be used to value the business. The value of the tangible
assets usually sets a rock-bottom selling price for the business. Intangible assets may be worth
money too – goodwill, customer lists, trademarks, patents, leases, permits and contracts can be
factored into the price. Many buyers resist paying a lot for intangibles, but for the seller it pays to
evaluate each one for its worth. Hiring an appraiser is often a good idea when the price of a
business will be based largely on assets rather than cash flow.

Websites, such as kickstarter.com and gofundme.com are allowing entrepreneurs to reach new
money sources effectively and inexpensively.

How do I negotiate a Win-Win agreement?

A funding event, whether for a start-up or an ongoing operation, involves two parties: the
investor and the company.

Negotiations between investors and business owners involve the following factors:

 The Amount of Capital Invested. Funding may be a single amount or a combination of
investments over a defined period.

 The Timing of the Investment. A specific sum is invested initially with future investments on
specific future dates or when certain performance measures have been met.

 The Return on Investment. In debt, return (or from the company’s perspective, “cost”) may
be expressed as interest with specific payment periods and principal amortization. In equity,
return is the proportionate share of future earnings directed to the investor.

 The Timing of the Return to the Investor. As the investor, the timing of returning the capital
invested is critical. As capital chases returns, the investor wants to know that relative to other
possible investment opportunities it is attractive to invest with you.

 The Certainty of the Return. Since the return on capital will be in the future, investors are
naturally concerned about the likelihood of the projected results becoming reality. This “risk”
increase is directly proportional to the period between investment and projected return, the
size of the return relative to the investment, and the reliability of the underlying financial and
operating assumptions. The best way to manage this is to show investors you have a plan in
place, keep in communication with stakeholders and deliver results.

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