How to value business assets
A business's assets are a vital part of any valuation - buyers and sellers need to establish exactly what assets will be sold in any transaction. A business has 3 types of assets, which you will need to consider separately:
- current or short-term assets (tangible)
- non-current or fixed assets (tangible)
- intangible assets.
Valuing current assets
Current or short-term assets include accounts receivable, inventory and other liquid assets. They're assets you could reasonably expect will be converted into cash within 12 months.
To value current assets, you'll need to review the business's stock on hand and balance sheet.
Your financial adviser or accountant can help you value the current assets of a business.
Valuing non-current assets
Non-current or fixed assets are long-term or permanent business assets. Non-current assets include land, buildings, plant and machinery, tools, motor vehicles and computer equipment.
Non-current assets are usually valued by deducting the accumulated depreciation from the original purchase cost.
For example, if a business bought a computer for $2100 two years ago, this is a non-current asset and it's subject to depreciation. If the accumulated depreciation for the computer is $1,000 over the 2 years, then the value of the asset now is $1,100.
Sometimes, the depreciated value of a tangible asset is quite different to its market value. It's important to verify the market values, particularly for high value assets.
Valuing intangible assets
Intangible assets play a major role in valuing a business. They include things like patents, copyrights, goodwill, customer lists and intellectual property (IP). IP is difficult to value as it doesn't depreciate in the way that a tangible asset does. You should consider seeking professional assistance to value intangible assets.
Learn more about valuing intangible assets on the Australian Taxation Office website.
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