Cash flow is what adds value to your business. The value of your business to a potential buyer can be measured based on the expected future cash flow.
The price someone is willing to pay depends on the predictability, sustainability and the growth of that future cash flow.
Key elements of value depend on the continued presence of the key tangible and intangible assets which have been developed. They sync to produce a product or service.
Intangible Assets:
Your workforce: This includes the experience, education or training of the workforce. A study of (McKinsey & Company) 13,000 executives from 120 companies and case study of 27 leading corporations, found that talent will be the most important resource in the next 20 years.
Information base: This includes business books, records, operating systems and other information base. This includes customer related information base, accounting or inventory control systems, customer lists, newspaper, magazine, radio or television advertisers. This relates to a systemized system of your operation. A business with a systemized operation/process for producing and selling products or services, has a higher value. By having a developed and documented operating system (like manuals), you create more value to your business which a buyer is willing to pay a premium for.
Supplied-Based intangibles: Sometimes a business may have a relationship with another business who is exclusive. This could be anything from a unique part of an engine to space in a major store to sell products. This can be favorable supply contracts, or favorable credit ratings. This helps with the future value of the company.
Licenses and Permits (private or governmental):
Covenants not to compete: For example, an exclusive territory which competitors can’t compete in.
Franchises, Trademarks and Trade Names: This give exclusivity to the organization. Trademarks, and Trade names.
Government Licenses and Permits: Any right or license granted by a governmental unit is an intangible assets. The right to use, sell, or service in an area which is unique just to a business will add value to the concern.
Going Concern Value: A going concern value is the additional value that attaches to the property by the reason if its existence as an integral part of an ongoing business activity.
Absence of contingent liabilities: A business not having pending litigation, tax audits or breaches of contracts. Also, a company without negligence claims, product liability claims and other contingent liabilities is considered an enhancement of a business.
Goodwill: Goodwill is attributable to continued customer patronage expectancy. The goodwill can create value because of the reputation, along with other factors of the trade or business. The public perception of a business.
Your Business Worth 