The Role of Technology Assets in Small Business Valuation
The technological infrastructure of a company forms a significant part of the intangible assets of a company. It would be a folly on the part of the business owner to undermine the importance of the technology based assets of the business, while conducting a company valuation. A few such assets are software, patented applications, databases and engineering trade secrets. Usually the patents and trademarks of a company are included in the main asset list of the company. What remains neglected is the technological expertise and learning accumulated over the operational years of the company.
The valuation of the technological assets like software, databases and applications must be added to the net valuation of the business. However, there exists a problem. The useful life of a software or a database is very difficult to determine. Businesses keep on updating their software and databases in a continuous manner for the betterment of operations. The updating also depends on new inventions done by the R&D department of the company or any of its competitors. In fact, the value of each update is largely influenced by the dynamic market forces too. This creates an issue during small business valuation, as it is not possible to determine the exact value at a particular point of time.
A particular version of software enjoys a very short life period. So, the value of the technological assets incorporated in the sample valuation report or a tentative report may not be accurate, and so, might invite questions from prospective investors. This problem is solved by several business firms in a diplomatic way. They include the value in the valuation of goodwill of the company. Goodwill is not amortizable, and so it becomes very beneficial for the company if it includes the research and technological assets in its goodwill.
In all cases, the inclusion of the value of technology increases the worth of the business in the eyes of the stakeholders. In fact, there are certain investors who give special attention to the technology aspect of any business before taking any decision of investing in it. With the advent of digital technology, information and knowledge driven business systems have gained immense prominence. A recent survey by a reputed research firm suggested that technology-driven business firms are being highly valued in comparison to the firms in established and mostly saturated industries. The business report of a technology-driven firm is undoubtedly more likely to invite stronger investors today.
The only problem a business owner might face in this aspect is that established business valuation firms might lack the procedure or expertise to evaluate the technology infrastructure of the business. This problem can be solved with the use of online business valuation software which are programmed to generate company valuation report with the information from technology valuation included in it.