Valuing a Business: The Asset Value and Payback Value

Last Updated: August 22, 2009

6b) The Right Approach

Different methods are also used depending on the size of the business and so we have stuck to the main ones that are generally used to valuing Small Medium Enterprises – ‘SME’.

During this time, you should consult your accountant to determine the best approach and also allow them to make the necessary calculations: despite the simplicity they may show, the figures involved may take time to reach through previous calculations taken from the accounts.

Further, most of the figures and values you need should have been obtained during your due-diligence period.

6c) Asset Value

Using assets to value a business is more commonly used when it is considered as asset-intensive i.e. the assets heavily contribute to the level of profit that is generated. The Net asset value can therefore be obtained from the sum of the following:

An accumulated value of all the fixed assets including plant, land and machinery.
The value of any leasehold improvements: this includes any refurbishments or modifications the owner may have made such as new office space and/or equipment. You should note that the leaser can make the owner return the leasehold to the original state should these changes not be beneficial to you. Any improvements would therefore not be included in the overall value.
The value of the inventory which can include raw materials, stock and anything that may be considered as work-in-progress.
The value of intangible assets which not only includes goodwill but also logos, trademarks, and any patents.

6d) Payback Value

This is where you will set a price determined by the period that you expect to get a return for your initial investment. For example, a newsagent has a Net Profit of £30,000 and you expect to start making money after the third year. In which case, you would multiply this period by the Net profit i.e. £30,000 x 3 years = £90,000. This method strongly validates the fact: a business is only worth what someone is willing to pay.