Companies like Apple have proven that a strong brand is priceless. Whether or not you’re thinking of selling, learn how to assess and improve your brand’s worth.
Business selling prices are in the news because, believe it or not, sales of businesses are once again on the rise.
“Seller demand never ends, says John Davies, CEO of Sunbelt, the world’s largest business brokerage firm, and the expert advisor behind “Selling Your Business for Dummies,” which I authored in 2009. “It can be delayed,” he says, “but that causes the kind of pent-up demand we’re seeing now.”
According to BizBuySell, the Internet’s largest business-for-sale marketplace, business sale transactions climbed 8 percent in the second quarter of 2011 compared to a year ago. And while median selling prices are down 6 percent, price concessions aren’t across the board. Some arenas, Davies says, are seeing sale prices similar to those of three to four years ago.
Brands boost business valuations
“Principally, brands are the most prominent factor affecting the pricing of a business, whether the business is franchised or not; whether it’s a local hamburger stand or McDonald’s,” says Davies. “With a known brand name, you’re able to charge a premium price,” he says. “Plus, buyers look for businesses with expandability. With a valuable brand, it’s easier to expand into other markets with lower customer acquisition costs. The numbers speak for themselves.”
Brand terminology defined
With brands driving business valuations, let’s clarify a few key terms:
- Your brand is what people believe about the promise your business upholds and the benefits it consistently delivers.
- Branding is the process of building awareness and a positive collection of perceptions in the minds of those your business seeks to influence.
- Brand value is an assessment by consumers that leads to a willingness to go out of their way or pay a premium to buy your offerings over others.
- Brand equity is the economic worth of your brand as an asset.
- Goodwill is the difference between the net book value of all balance sheet assets and the total purchase price of a business. By definition, goodwill covers the value of intangible assets — and sometimes accounts for half the selling price.
Estimate your brand equity
Evaluating the worth of a brand is an art and a science for which major brands rely on professional valuation experts. For a preliminary sense of your brand’s worth, however, follow one of two approaches:
- Calculate the cost of re-creating your brand, including what it would cost to develop your name, logo, trademarks, slogan, domain name and website registrations and presence, as well as brand-identifying elements such as your musical signature and branded product features, marketplace awareness, client list and customer loyalty.
- Calculate the return on your brand’s premium market position:
1. Determine the difference in price between your offering and offerings from generic or lesser-known brands.
2. Multiply the price difference by the number of units sold annually (for a service brand, that might be the number of hours sold a year; for a product brand, it might be the number of units sold).
3. Adjust the result to account for anticipated impact on the brand from factors like altered customer behavior in the event the brand transfers to new owners, forecasted market growth or retraction, economic trends, and other market realities that may affect your brand’s future sales and premium price position.
4. Multiply the adjusted figure by the number of years the business is likely to experience projected cost benefits from its brand strength.
Treat your brand like a salable asset
Even if you’re not preparing for a business sale, care for your brand as if you have a sale in mind.
“Realize your business name is a salable asset,” Davies says. “Buyers want to know they can take over without customers knowing the business has even changed hands. They also want to know the brand is expandable,” and therefore of increasing value.
Also, he advises, “Focus on your brand message, including the implicit and explicit representations you’re making and whether your message can stand up to a challenge. Then, use it as a diagnostic, and design your business around it.”
Finally, be sure your brand can live without you, so when the time comes, you can sell it — at a premium price — to a new owner.