Tangible, Goodwill or Redundant Assets in The Buckeye State
The skillful Business Appraiser from the Buckeye State, Circleville’s own Mr. Dave Horning, taught me that there are several ways to go about figuring out the value of a business.
Dave and I finally finished talking about the Strategic Value of companies today; the well-versed Business Valuator wanted me to be clear on that aspect first before moving into discussions on things like Intrinsic, Collateral, and/or Insurance Value.
Knowing an Acquired Business’ Future in Ohio
Business tycoon and philanthropist Warren Buffet once did a presentation for a small group of students and investors (the video is in black and white, I don’t know how long ago it was made…) where he says how important it is for him to know the future of a business.
The Chairman and CEO of Hathaway casually tells the tuned-in, actively-listening audience in front of him:
“The most important thing to learn is how to value a business; it’s also the toughest to explain…I am looking for things, signals, that tell me in investments what height and other things would tell me if I was a basketball coach…in the end, what I’m going to buy is the business where I feel extremely certain about the competitive advantage, extremely certain about the integrity and ability of the management, and where I think the discounted flow of cash that business will produce over time makes sense in relation to its current price. You really are looking for a business where you see the future…”
-Warren Buffet on “How To Value a Business” (Value Investors Archive, Dec 2021)
“So, before,” Dave began, “we talked about the standard of value, meaning that a business can be appraised at its fair market value.”
“Yeah, I believe I got that part down.”
“Alrighty then. Since you feel you’ve digested that, what I want you to pay attention to now are the different types of assets a company can have.
When the 69-year-old, knowledgeable Ohio business appraiser told me that, I looked around a bit, and decided that the most concrete source (the one that reflected best the subject he’d just asked me to pay attention to) came from DJB Chartered Professional Accountants in the section labeled ‘Business Valuation’.
Tangible, Goodwill, and Redundant Assets
I found out that assets can be split up into three main categories, which are (1) Tangible Assets, (2) Goodwill (which are also called Intangible) Assets, and (3) the ones Dave wanted me to take a look at, Redundant Assets.
Tangible Assets
If you look up the word ‘tangible’ in the dictionary, the definition reads “perceptible by touch”. The word means the same thing in accounting, too, and people like Dave who work in the trade of business valuation know that tangible assets are physical property (as described by the Accounting Tools website).
I myself worked in the hospitality industry for a long time. So, a lot of the examples that I give will be related to that industry. When I think about some of the places that I have worked over the years (such as the Krispy Kreme in Myrtle Beach) there are lots of tangible assets that I worked directly around on my shifts.
For instance, sources point out machinery and vehicles as tangible assets. Using that Krispy Kreme for an example, that huge machine that makes the donuts would be a tangible asset, and so would all those Krispy Kreme trucks that take doughnuts everywhere, from grocery stores to other different places across the country.
Goodwill (or Intangible Assets)
When the average person thinks about the word ‘Goodwill’, they likely think about the place where you can donate used clothes and/or other items to be sold at cheaper prices to the public at Goodwill stores. The meaning is a little different when it comes to accounting.
According to Live Flow, an organization that reports on accounting systems, the term ‘Goodwill’ to a business appraiser would “refer more to the positive reputation or the image of a business (Live Flow, Jan 2023).”
You, of course, can’t hold Goodwill in your hand, because it’s not a physical thing. But, if a financial buyer is purchasing a business that has a nice amount of Goodwill as an intangible asset upon acquiring the business, the buyer would benefit in the future from that.
They’ll be purchasing a business that has a great reputation right from the beginning, all because of the good things for the community that the (things like charity work, donations for good causes, etc.)
In essence, the acquiring business owner has just bought a brand that has a great reputation. And, just because you can’t physically touch Goodwill doesn’t mean that it won’t help move the business in a positive, profitable direction!
Redundant Assets
These are the ones that Dave wanted me to pay attention to today. The Corporate Finance Institute says that redundant assets are most common in private companies, and are not needed to accomplish the normal, everyday operations of a business.
The Institute also points out that “redundant” is, in their opinion, probably not the best word to describe these types of assets, being that they may be better understood or described as “additional” or “extra”.
Contact Dave Horning in Ohio for Outstanding Business Appraisal Services
If you’ve ever heard a person say that they get to use the company car in their off time, that car would be a good example of a redundant asset because, although it may increases employee morale and motivation as a good incentive, that vehicle itself is not needed during every shift in order to successfully operate the business.
In the following article I’ll explain these three assets using some businesses from Ohio as examples. In the meantime if you need valuation services in Ohio feel free to contact Dave Horning today His contact info is here.
The easiest way to contact Dave for business valuations is by message at his Ohio Business Brokers Association page.
You can just send him a message here.
Or, you can email him at dave@davehorning.com.
