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Tangible Assets (Balance Sheet) Method
In some instances, a business is worth no more than the value of its tangible assets. This would be the case for some (not all) businesses that are losing money or paying the owner(s) less than fair market compensation. Selling such a business is often a matter of getting the best possible price for the equipment, inventory, and other assets of the business. It is generally best to approach other firms in the same business that would have direct use for your assets. Also, a company in the same business might be interested in taking over your facility. This would mean your leasehold improvements (shelving, modifications to space, etc.) would have value and the equipment would have value as "in place" plant and equipment. In place value is higher than the value on a piece-by-piece basis such as at a sale by auction.
Some intangibles such as patents or copyrights might have value to the right buyer. I was recently involved in the sale of a small video production company that was in a break-even situation. The company owned a copyright to a video that was in distribution and earning royalty income from the distributor. While the company itself sold for the value of its tangible assets, the owners were delighted to accept a separate offer of $55,000 for the copyright. The buyer looked at the anticipated earnings from the video program and applied a capitalized earning formula to it. He calculated that the $55,000 investment would earn about $50,000 for each of the next three years and then would be worthless. That means he would earn a net $93,000 (150,000-55,000=95,000), which is almost a 20% return on an annualized basis.
In any case, unless your business has made a paper killing on appreciable assets (such as a large appreciation of real estate owned), selling based on tangible asset value is the last resort method to use in valuing your firm for sale.
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