One of the most difficult items to value for any business is intangible assets – by definition something that is not physical (stock, plant and equipment are all tangible). Assets such as goodwill, brand recognition, intellectual property, patents, the trademark are all examples of intangible assets.
For most SMEs, some of these are very difficult and take many years to build up. For instance, the value of the flying Kangaroo, Qantas has one of the most valuable brands in Australia and works extremely hard to manage and protect its brand. It’s also 100 years old.
In terms of licenses and registrations, these can all be built up over time and appropriate steps are taken to register ownership and ensure they create some actual value.
Valuation of business goodwill is a whole separate topic and has been covered in several recent articles on our site.
Which brings us to the topic of intellectual property, often misunderstood and undervalued by midmarket business owners. Intellectual property is simply defined as “intangible creations of the human intellect “ – normally made up of proprietary knowledge, a productive new idea, methodology, process, invention or design.
It is quite common in the IT space to see businesses being purchased off the back of the intellectual property they own. Many of Apple’s acquisitions in the last five years, for example, have been based on a particular proprietary product or solution that the other business developed and has now been acquired by Apple and leveraged into Apple’s network of products and services. Businesses that can achieve this successfully, generally sell for maximum possible value. In the example above, Apple can leverage that particular piece of software or technology far better than the original owner ever could imagine and are therefore happy to pay a premium to acquire that technology.
But it’s not always technology, many businesses have to realise substantial value as a result of the commercialisation of their intellectual property development and use of a particular process or methodology that is unavailable elsewhere and has proven to be successful can also be a substantial value increase.
Our own 21 step proprietary process to assist mid-market business owners through business succession exit planning is an interesting example, when I first published the precursor to intellectual property back in 2005 the process consisted of only nine steps. It has since been developed and refined to 21 steps with all of the accompanying tools, templates and checklists needed to implement the plans with clients.
What makes any intellectual property valuable, is the application with customers (and its effect/value ), the size of the potential target market and its “uniqueness.” Any business that can develop and document ownership of unique IP that is accessible by, and valuable to, a significant target market should be hugely valuable.
If you’d like the discuss the value of your own business’s intellectual property, get in touch.
