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Trevor Monaghan
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Hi Jacqui,

Great question. There are two general types of valuations: financial and strategic. The first is based on valuing the business on historical and projected returns to owners/investors and the second is based on the business being bought by an investor for strategic reasons. It’s almost impossible to do a valuation for the latter unless you know exactly the person that will be buying the business and can quantify the additional benefits of them owning the strategic assets.

The free business valuation calculator only takes into account intellectual property to the extent that it is already being used to generate profits. In the case where the intellectual property is not yet in use then you would need to add the value of that asset if it is being sold with the business. Just like you would if there were surplus land assets.

In theory a formal valuation will try to estimate the future profits which will be generated by the intellectual property and factor the uplifted profits into the valuation. When you see internet companies selling for billions of dollars without any current profits, it is the future profits from the intellectual property they are buying, not the intellectual property itself. It all comes back to the projected profits from the current assets.

Remember that a valuer is only trying to calculate a fair price based on the projected return to owners/investors for a given level of risks. That is a baseline for negotiation where they can be comfortable that if they sell for a higher value they got a positive outcome.

What a great discussion. Feel free to post another response here if you want to keep sharing our ideas.

Trevor Monaghan
Chartered Accountant
Climax Business Strategies
http://www.climaxbusiness.com.au