How to Increase the Value of Your Company Through Intellectual Property Assets
The wish of any manager and business owner to increase the company's value is entirely natural. It can significantly affect the company's rating, the level of cooperation with partners, confidence in its products or the services provided, also high valued company could be sold for a more expensive price to investor.
All the things which business consultants and Internet marketing specialists offer – improving service quality, brand promotion, increasing the speed of service, enhancing convenience for the customer, changing the work style, creative ideas and design, improving payment or discount options and so on, of course, are reasonable and target to make a business financially successful.
There is another factor, however, which should be taken into account – a company's Intellectual Property (IP). If a company would be divided in two – one including physical assets and another one with intellectual assets: practices, technologies, inventions as well as brand identity and visual appearance, it's very likely that the one with the intellectual assets would soon grow and continue to prosper. The company's IP is where the real value of the company is.
What are intangible assets and how they can benefit your business
In the 1980s, the United States has begun to use the principle of introducing intangible assets into economic circulation. Intangible assets are non-physical assets having a useful life for more than one year. Copyrights, patents, websites, products, customer lists, franchises, trademarks are examples of such assets. In business, an intangible asset can be tough to evaluate; that's why business owners usually hire a specialist for this procedure. Intangible assets have a certain value and provide an opportunity to increase the share capital of the company, take advantage in the market and protect a company from unfair competitors.
There is another term connected to it – "goodwill". It conveys the idea of a good name, the business reputation of the company. This term also means the value of a company’s brand name, its customer base, their relations with customers and employees, and any types of original technologies or practices they have.
Capitalization – turning expenses into assets
Companies spend much money on developing innovations, marketing, advertising, paying salaries to staff; all these expenses are accounted on the balance sheet as costs, thus reducing the company's profits. Having a vast experience, we can surely say that only two indicators need to be changed: profit and net assets in the company's balance sheet.
The International Accounting Standard 38 Intangible Assets (IAS 38) states the possibility of capitalization, which allows you to legally increase the value of assets and profits of the company. In order to do it, an independent expert's report is necessary. Capitalization (the conversion of costs into capital) allows expenses to be turned into valuable assets. With the right capitalization plan, the value of a company's intellectual property can be increased.
When business is booming, most senior managers and company heads think it will keep going this way. However, not many business owners think about protecting their intellectual property from, e.g. employees being lured away by unfair competitors. And if there is an understanding and desire to safeguard the business, then arises another question – is it expensive to capitalize the intellectual property? Is it worth it?
Who may need capitalization of intellectual property?
Intellectual property is an asset owned by any company, no matter to which industry it belongs to. Those companies who need capitalization can be divided into several overlapping groups:
Companies who wish to raise their value to attract investors;
Companies who want to receive bank loans or investments using IP as collateral;
Companies who want to protect their existing and future developments;
Companies who want to protect their trade secrets and know-how and prevent corporate theft;
Companies which don't want their key specialists to be headhunted by competitors.
Companies who want to protect their business reputation from defamation.
What are the advantages of capitalization?
In other words, what will a company actually get once their intangible assets are capitalized? These are the core advantages:
Increasing the value of a company's brand capital as a result of marketing and advertising activities,
expenses will be converted into assets;
Increasing the profits recognized on an entity's balance sheet;
Acquiring new intangible assets, which can be used for investments, bank loans, etc.
Why is it important? For example, Coca-Cola has been producing its soda for more than a hundred years, and if they had not protected properly its technology, any company could produce this popular drink with the same or similar technology and the recipe anywhere in the world. Another example is major corporations such as Google, Apple, Microsoft. On average, their value is formed with their intangible assets by 43%. There are also many companies where the share of intangible assets is around 80-90%.
We believe that only those companies that learned how to turn their ideas and developments into a profitable asset have more chance to gain leadership in the global market. If you are aspiring to grow your business, and do well in the future, take advice from Intellectual Property professionals early on.
Published by Irina Agamyradova
IP Consultant, Dubai Copyright Office