Can a great brand boost the value of your business when it’s time to sell?
A brand is an investment. It’s an investment in time. It’s an investment in brainpower and creativity. And with that is an investment in money. Businesses that invest in their brand want to know: is it worth it? In our role as valuation analysts, we have this conversation about the value of a brand with new clients all the time. Here’s a quick look at the question “does brand = value?”
Q. Is my brand a factor in the value of my business?
Clients often ask: “When you begin the valuation process for my company, do you need to look at my branding and marketing materials as part of your analysis?”
Our answer is: Absolutely. For all intents we are talking about the “curb appeal” of your company. Think for a moment about the curb appeal of a house: you quite literally go through a series of judgments about a house in that first instant you see it. Is it well cared for? Do the owners’ know what they are doing? Am I more likely than not to find problems inside?
There’s a similar process we go through when looking at a company. We go through those same snap judgments. As a valuation professional, I’m trying to get a feel for how well cared for your company is. As a consumer it’s probably the opposite: I’m wondering how well the company will care for me.
Q. So how do you actually quantify the value of my brand?
Generally speaking, brand value is an element of “enterprise value” – or the value of the entire company. Think of it this way: without the rest of the company, does the brand have value on a stand-alone basis? In most cases, no.
That being said there are some reasons to value a brand on its own, such as determining lost profits in litigation, in order to meet financial reporting requirements, or in some instances to sell the brand as a stand-alone asset.
There are some specific models used to value brands. These models tend to be similar to appraising other assets (i.e. market approach, income approach, cost approach). Without belaboring the detail, valuing a brand involves us:
● comparing it to the value of other similar brands
● developing an income approach model, perhaps using a “relief of royalty” analysis
● determining the cost to develop the brand
Q. Should I invest in rebranding?
Clients also wonder: “If my brand is lacking, do you think I should invest in rebranding?”
We believe that it comes down to a question of ROI. How will the brand “refresh” return value to your company? In some cases it can be a very low bar.
Here’s an example: Last year we were engaged to value a trucking company that was preparing for a sale. The company has no website. Every employee used some variation on truckerCo1 @hotmail.com.
What was our immediate reaction? Probably the same as every new customer: why on earth hasn’t this company joined the modern world? Our actual series of thoughts: we begin thinking that their books are probably a mess and their trucks are old and broken down.
This company absolutely needs to invest in some curb appeal if it is contemplating a sale. Every business seller wants the highest price for his or her business, so the brand will make a big impact on what a buyer is willing to pay.
Stated more broadly, we think a refresh makes sense the moment your brand doesn’t fully convey your company’s values, beliefs, or unique selling proposition.
Ultimately the value of great brands is already priced into the performance (and in turn, value) of a company. Great brands have curb appeal. Great brands encourage clients to value their association with your company. On the other hand a poor image can have a significantly negative impact on both financial performance and value. More so, a negative image can potentially render a company unsellable.
As you approach a sale or exit it makes sense to take stock of your company’s image. If you “mystery shopped” your company, would you want to be a client? If your answer is anything shy of a ”absolutely” it’s high time to reevalute your brand.
About the Author:
Dan Doran, CVA, is the founder and principal of Quantive Business Valuations, a certified valuation practice serving privately held businesses nationwide. Doran is an avid blogger and writer on a variety of business issues, including valuation, startups, growth, exit planning and structuring transactions. Learn more at quantivevaluations.com.