The Value of a Business (or "The Cost of Doing Business in Barnstable")

Should a piece of business property be assessed at the value of the entire company?

Should my home assessment include the value of my laptop, TV, furniture, and pets?

In today's Barnstable - where taxes are high, homes are overvalued and not selling, good jobs are scarce and tourism (the lifeblood of our economy) has been low - people looking for any reason at all to lower their taxes are willing to suggest exactly that - a piece of business should be assessed at the ENTIRE value of that local business. Not that a Mobil station should be assessed at whatever billions of $$$ that Mobil is worth, but that a local store or mall that has only one location should have the property assessed at whatever price someone else pays for the property AND business.

Property assessments in Barnstable have been skewed for years. A combination of bad assessing, 2-acre zoning, building caps and a few other factors have caused a dramatic increase in assessed residential property value. We asked for 2-acre zoning. We wanted a cap on new homes. We knew that higher property values would result, and that was a major reason people wanted these measures - they wanted more valuable homes. BUT, now we are paying for it - because higher residential property values means higher residential property tax bills.

Now, looking to shift the burden of taxation to a faceless "Corporate America", there are some that will do anything to (unfairly) shift the burden away from themselves. Looking to avoid paying for their own mistakes, they try anything from the split-tax to trying to improperly assess business values. Let's take a closer look at the value of a business:

Assuming that someone is going to buy a business and its property, what are some major factors that make a business (and its property valuable)?

• Strength & viability of the business
• Property value
• Value of recurring contracts
• Local goodwill
• Historicity of business and site

Strength & viability of the business

If someone is buying both the business AND property, with the intention of continuing to run the business, then the actual value of the sale is going to be based (at least partially) on the strength and long-term viability of the business. If the business is floundering or outdated, it is worth less. If it is extremely successful or has a bright future, then it is worth more. If the business has a local monopoly, it is more valuable, too.

Property value

Property value is a very important factor in business value. Size, location, structures, parking, etc. all play a large role in setting property values. A desirable size & location and adequate parking allow a new owner to be comfortable on-site. A building without need of renovation is another valuable commodity. Without some of these items, a piece of property is worth less.

Value of recurring contracts

The value of recurring contracts is a value that cannot be underestimated. While some may be undesirable, generally, a recurring contract is a highly valuable asset for a purchaser. Guaranteed lease revenue, long-term contracts with large corporations or government, patents, etc... all help increase the investment value of a purchase.

Local goodwill

Local goodwill is a commodity unlike any other. Local goodwill can make an ordinary business into a nationally known commodity. Take Four Seas Ice Cream - an ordinary ice cream shop, BUT local goodwill (among both residents and tourists) has propelled Four Seas into a name known nationally and it has become synonymous with Cape Cod summers. Having a good name in the local community is key to business success, and having a GREAT reputation locally is what helps makes you into a GREAT success. If someone were to buy Four Seas tomorrow, they would be paying a premium for the name and its local success.

Historicity of business and site

Historicity of a business or site ties in with local goodwill. Do people go there because of history? Does the site have historical value? Is it located in a highly historical area? Take the Hyannisport general store, right next to the Hyannisport Post Office. That tiny little store makes a huge profit because everyone HAS to go see the Kennedy Compound and Hyannisport.

I say all this to illustrate my point - the sale price of a business and its property is not what the property should be assessed at. The innate characteristics, features and advantages a business contains cannot be included in the value of a piece of property. If someone buys Four Seas Ice Cream and its property to tear down the building and put a strip mall in, that value will lose the majority of its value because the one thing that makes that property so valuable is not the property itself, but the business and history that makes Four Seas Ice Cream (the company) so valuable. Without Four Seas Ice Cream (the company) included in any sale of the land, the sale would worth MUCH less.

(Please note that I was only using Four Seas Ice Cream as an example. I am not saying that it has/will be sold.)