Valuing a Business

9. Intangible Issues

The key source of value of your business may be something which cannot itself be measured.

9.1 Strong relationships with key customers or suppliers may be critical. For example:

• If a business holds the UK licence (or UK distributorship) for a product which is expected to be successful, it's value will increase accordingly.

9.2 Management stability may be crucial, if the purchaser does not have a strong team.

If the owner-manager or other key people are going to leave, the business may be worth less. For example:

• The profitability of an advertising agency may collapse if a creative person leaves.
• If key salespeople leave, they may take important customers with them.

9.3 The more risks there are from a purchaser's perspective, the lower the value will be.

There are specific actions you can take with a view to building a more valuable business:

• Set up excellent management information systems, including management accounts. Good systems make 'nasty surprises' unlikely.
• Tie in key customers and suppliers through contracts and mutual dependence.
• Minimise exposure to exchange rate fluctuations and other external factors.