By Karen E. Klein Q: We're trying to determine a valuation for our company in anticipation of selling it. How do we put a value on a custom-published magazine that's distributed to our clients to stimulate sales, improve lead generation, and increase brand awareness?
---- T.S., British Columbia, Canada
A: There's a net profit multiple used for valuation in the magazine industry, but since your publication has little in common with a commercial magazine, that formula probably wouldn't help. It sounds like this in-house publication falls under that broad but tricky category, intangible assets. Like customer lists, a solid reputation, and business good will, intangible assets are often a company's most valuable ones -- but they are also among the toughest to put a price on.
If you can document -- or come up with a good estimate of -- how this magazine affects sales, it will help tremendously. For instance, if monthly revenues have increased by a certain percentage over the months that you've been distributing the magazine, and you factor out other possible reasons for the jump (new product lines, other marketing or advertising, price reductions, etc.), you may be able to make a fairly convincing case for valuing the publication strongly. But if the magazine doesn't seem to have a direct correlation to business leads and actual sales generated by its distribution can't even be guessed at, it may be quite difficult for you to justify valuing it as one of the firm's primary assets.
BASIC QUESTIONS. In fact, producing a magazine -- and you don't call it an e-zine, so we'll assume it's of the paper-and-ink variety -- is expensive. Generating content, putting in on the pages, printing it, and mailing it to your clientele on a regular basis are bound to be costing your company some serious cash. Rather than a valuable asset, the magazine may be viewed by potential buyers as a promotional vehicle that hasn't proven itself worthy of the time and expense associated with producing it. And if it can't be shown to have a correlation to increased profits, it may be that a new owner will choose not to continue publishing it -- or perhaps turn it into an e-mail newsletter, thereby eliminating printing and mailing costs.
"A potential buyer might face new costs if they have to find an alternative way of generating leads, but they may or may not be willing to consider that" in negotiating a purchase price, says Colin Gabriel, a Westport (Conn.)-based author and expert on buying and selling businesses.
If you believe that the magazine adds significant value to your company and it should be factored as a positive in the selling price, it's probably worth your while to hire a professional business appraiser, experts say. Check the American Society of Appraisers for some references. A certified appraiser will come up with a reasonable, well-researched value not only for this marketing tool, but for your business as a whole.
A professional's work may cost from $2,000 to $5,000 or even more, depending on the size and complexity of your business, but hiring one will give your selling price a great deal of credibility. It will likely help you assign reasonable and fair valuations not only to your in-house magazine, but to many other intangibles as well. And often, those oh-so-ephemeral assets will be a company's best selling points. Have a question about running your business? Ask our small-business experts. Send us an e-mail at email@example.com, or write to Smart Answers, BW Online, 6th Floor, 2 Penn Plaza, New York, NY 10121. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.