Selling a Business: Tangible Vs Intangible Business Valuation Factors


Stock, a tangible asset, is easy to value Valuing a business consists of quantifying the value of a range of factors and weighing their comparative importance, which depends on the model of valuation employed – in turn chosen according to the sector, because different factors matter to varying extents depending on the industry. 

The most common valuation method if you want to sell a business is a multiple of earnings – a ratio, determined according to the sector, of the income generated by the business. Income, or profit, is a tangible factor, meaning its value can be measured easily because you have a specific figure to work with. Creative accounting notwithstanding, there’s little argument about the true value of an annual £100,000 profit – it’s worth, well, £100,000 a year.

Other tangible factors are valued according to the unerring accuracy of the market – where demand meets supply. Unlike profit, they are invariably physical things and their value is simply derived by what people tend to pay for them; the market rate in other words.

Examples of tangible factors:

  • Balance sheet figures – profit, revenue and cash flow
  • Premises
  • Stock
  • Equipment
  • Vehicles
  • Fixtures and fittings

Intangible factors, as you may have guessed, are invariably non-physical things whose value is difficult to determine. Subjectively determined, they could be ascribed wildly divergent values by a selection of different people involved in selling a business.

Intangible factors can include:

  • Reputation and goodwill – ie, your reputation among customers and potential customers
  • Relationships with suppliers
  • The value of licences
  • Any intellectual property patents
  • Quality of staff
  • Level and quality of competition and barriers to market entry for potential new competitors
  • Amount of repeat business
  • Longevity
  • Threats – eg, forthcoming regulatory changes – or opportunities – eg, a boost in government funding for teaching English to immigrants will benefit a language school