Approaches To Intangible Valuation Of Businesses

As mentioned in a previous article, valuing intangible assets can be an important part of any business valuation for marital dissolutions, gift tax determination, estate planning, shareholder rights cases, conversion from C corporation to S corporation or sale of a business. An experienced business appraiser will help you identify the intangibles unique to your business, and may do so using a variety of valuation approaches. As a nationally recognized business appraisal firm, American Business Appraisers of Phoenix would like to share some of those approaches with you.

The Asset (Cost) Approach. This approach primarily focuses on the cost of developing the intangible asset. There are many aspects of a given business in which this approach may be effective. Patents, product development, and an assembled and trained workforce are often valued using the cost approach when alternative value approaches are not available.

The Market Approach. This approach is similar to the market approach used to value a business enterprise. As it pertains to intangible assets, the market approach requires research of relevant markets to obtain information on past sales and licensing transactions.

The Income Approach. This is the primary approach used to value most intangible assets. The basic tenet of this approach is that the value is based on the present worth of future benefits. Careful analysis is required when applying this approach because the benefits attributable to the specific intangible asset must be separated from the benefits attributable to other assets of the business enterprise.

There are other reasons intangible assets need to be valued as well. Some of them include determining a fair license rate, calculating an amortization deduction, quantifying a charitable deduction, calculating an inter-company transfer price, or estimating damages in an infringement case. Whatever the reason for such a valuation, a certified appraiser will use the above techniques in determining the correct value of your business.

American Business Appraisers is nationally recognized for a reason; namely its ability to perform business valuations and develop independent valuation reports that help clearly define the value of a business or business interest. If you’re in need of a business valuation, trust yours to an experienced business valuation firm like American Business Appraisers.