The Gatherer | Volume 2

24-25 / 36

24|The Gatherer | 25
UNLOCKING YOUR
COMPANY’S TRUE POTENTIAL
- the very real intangible assets
A huge portion of a
company’s value rests on
its underlying intellectual
property (IP). Market share often
rests in a brand name and margins
often rest on know-how and
experience. Whether or not this IP is
adequately identified and managed
can mean the difference between
valuing your company correctly and
selling your company short. That
value is important because it is the
number you are using to raise
money, sell your business, or attract
financing.
Out with the old...
How is a company typically valued?
A standard corporate balance sheet
contains all the features that are
expected - revenues, margins and
tangible assets. If you were to look
at the balance sheet of a company
50 years ago, you would see a very
similar list. The book value of today’s
global corporation is derived largely
from accounting practices created
hundreds of years ago to record
transaction costs and the assets
that are owned by the company.
It seems odd that such practices
should still be the only factors that
apply to modern day companies
...and in with the new
Whilst the old cost approach still
applies to part of the balance sheet,
it can’t be the only indicator used
to value a company. A modern
company has other components that
give value, even without realising
it. These intangible assets include
IP, brand, software systems, staff
experience and expertise, market
research, advertising, business
processes, and the like. These are
the assets that work behind the
scenes to make a company what it
is. Traditional accounting practices
inadequately give value to or even
miss these intangible assets, to the
detriment of your company’s value.
Ocean Tomo, an intellectual
property merchant bank, released
findings8 from its Intangible
Asset Market Value Study of the
composition of equity market values.
According to the study, the average
company’s intangible assets, most
especially its IP and technological
know-how, account for 84% of its
market value. Intangible assets, such
as technology know-how and its
patents, trademarks, and other IP
make up the difference between
the book value and the market cap.
Business owners need to recognise
the components of their company
that really add value.
Capturing the hidden
innovations
A company needs to identify their
intangible assets before value can
be attributed to it. Smart businesses
routinely evaluate not just the assets
listed on their balance sheet but
also make sure they have systems
to identify and capture their hidden
innovations. The biggest challenge in
doing so is the disconnect between
the management team, who needs
to make decision about how to
handle IP and the employees who
are the ones tackling problems in
their everyday work. This leads
to innovations being missed and
ultimately lost to the company.
The best way to bridge this
disconnect is through ongoing staff
education to develop a culture
that encourages the reporting of
innovations. A database can then
be established to track the progress
of the innovations. This ensures
the management team has all the
information at hand when making
decisions regarding intangible assets.
Leveraging the value
Being aware of the IP is one thing,
but correctly managing the IP and
leveraging its potential value into
real value can be a difficult task.
More often than not it will require
the registrations of at least some of
the IP to ensure adequate protection
is in place.
The valuation given to a patent
takes into account the savings the
technology gives your company and
the impact it has on market share
by third parties being prevented
from using the technology. The
other advantage is the ability of IP
rights to open your business up to
alternative revenue streams through
technology licensing arrangements.
The filing of a patent application
for every small innovation does not
always make commercial sense.
It’s important therefore to ensure
that each and every one of your
employees is under an employment
contract that assigns all IP rights to
your company and prevents them
from disclosing your IP both whilst in
your employment and after. Ongoing
education to remind your employees
about their responsibilities is also
important.
Both established business and
those that are just getting off the
ground need to recognise the part
that intangible assets play in their
success. Regardless so the industry
you operate in, up to 80% of a
company’s value lies in intangible
assets. A company’s value can
be increased by identifying and
managing the part that intangible
assets play to the company. This
increased value leads to more
business and larger growth.
8