A potential buyer can see your buildings, machines, people, desks and inventory when it comes time to sell a business.  But there is much more to determining a business valuation.  There are also many ‘invisible’ assets and liabilities that you as a business owner should pay special attention to.  In this article we’ll discuss two such categories, one an asset and one a liability.

Document Intangible Assets

Many businesses large and small own valuable intellectual property (IP)—trade secrets, trademarks, copyrights, and patents that can be the most valuable asset of a business. You should work hard to register all domain names, copyrights, trademarks, and patents. Unlike trademarks, patents have a limited life, so record when they expire.  As you know doubt are aware, intellectual property can have significant value and impact to the business valuation and attracting desired buyers.

A prospective buyer will insist on IP records, especially records documenting ownership. If your firm has significant IP assets, a formal intellectual property audit is essential. Your corporate attorney can direct you to experts who will appraise your IP and its transferability to a new owner. Also, you should determine the risk of potential infringement claims.  These represent risks that need to be examined and, if possible, mitigated before selling a company.

Settle Outstanding Actions

An important goal when preparing your business for sale should be to eliminate any opportunity for your business to lose value.  Any outstanding conflicts can do so, so commit to settling them quickly.  Resolve partnership and shareholder disputes and outstanding or threatened litigation as soon as possible. Document how you’re mitigating risks of past or pending litigation. Pay outstanding judgments.

Also, you should document how your business is complying with applicable regulations.  This ‘invisible’ risk could surface during the sales process.

Frequently, a prospective buyer will collect outside information on past and present lawsuits, your credit history and that of your business, complaints by consumers and public agencies, the official status of the corporation or partnership, and the existence of Uniform Commercial Code and tax liens. Assume that all that could be discovered by a potential buyer is.  Be prepared to disclose and discuss issues that may surface.

Selling the Invisible

Part of the value and the risk of buying your business is in what cannot be seen by the naked eye.  While the importance of physical assets is easily understood, the intangible assets and liabilities can be of even greater consequence when selling a company.

I invite you to use these ideas during your journey to sell a business.

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