Identifying the ‘Hidden Assets’ of Your Business

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During the free evaluation process with Five Star Business Brokers, probably the most important part for you as the owner of the business is identifying your hidden assets. This is because it will eventually give you a higher purchase price when you sell the business!

Hidden assets include profit centers that are counted as expenses in your tax returns or profit and loss statements. For example, an owner’s payroll salary is counted as an expense in the tax return. But is it really an expense? In reality, the owner’s salary is a profit to the owner. After all, he or she is paying themselves this money. All other personal expenses (such as health insurance costs, auto expenses, or travel expenses) that are actually for the benefit of the owner should be similarly treated as a part of the owner’s profits (or owner benefit).  Other  costs on a tax return such as non-cash expenses (such as depreciation), non-recurring expenses (such as the cost to cover a legal settlement), and expenses for the owner’s personal line of credit are in reality costs that would not be borne by the buyer of a business. These too count as a part of the owner benefit. Many people are initially confused by this concept, but a good business broker must thoroughly go through your financials in order to uncover all of these hidden profit centers.

Hidden assets also include other non-tangible assets or legal rights that a business may possess but that would not show up in a typical balance sheet. A great example of this is government licenses that various healthcare companies hold.  The administrative costs of getting certified by AHCA (Agency for Health Care Administration) and other government agencies for a home healthcare or durable medical equipment company, for example, are extremely high.  The value of such a license must be accurately reflected in the asking price, but the value itself is not be just the costs that the owner incurred. One must also factor in the months and months of waiting for such a license, plus the aggravation of not knowing when the necessary inspections will take place. Similarly, pawn shops have very valuable licenses. What is the value of the pawn shop license if the city in which the pawn shop is located does not issue any more pawn shop licenses? These types of hidden assets necessitate qualitative judgments and a professional business broker to know the industry and to know the value of these licenses.

Hidden assets can sometimes include franchisee’s territory rights where the full territory is not being presently exploited by the current franchisee. This situation presents a great opportunity for a buyer because of all the untapped potential of the franchised territory. It is thus important to somehow include this value in the asking price, and ultimately in the purchase price.

Other hidden assets can include a restaurant’s amazingly undervalued lease, or a retail store’s outstanding location (protected by a clause in its lease with a no-compete clause granted by the landlord) next to a large new residential development that is being built.  A business must be closely scrutinized to understand all of the company’s hidden assets.

Give Martin at Five Star Business Brokers a call today and let’s discuss the hidden assets of your business so that you can maximize the purchase price when it comes time to sell your business.

Located in Palm Beach County, Florida, Five Star Business Brokers proudly transacts business sales throughout the areas of West Palm Beach, Lake Worth, Palm Beach Gardens, Boca Raton, Jupiter, Delray Beach, Boynton Beach, Wellington, Palm Beach, Royal Palm Beach, and Riviera Beach.

 

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