How can businesses continue to generate returns for stakeholders and investors? Many of the most successful firms focus on managing and monetising their intangible assets to achieve excess returns. By regularly monitoring and valuing their intangible assets and their return on investment, businesses are able make the right strategic decisions that drive their success.
The most important assets of innovative and successful companies in the present data-driven and knowledge-based economy are intangible assets (IA), primarily represented by intellectual property (IP). For many companies, intangible assets may account for up to 80% of their average market value. For start-ups and research-intensive companies, such as those within the artificial intelligence sector – driven by data and stored in the cloud, this can be even higher.
So, what are intangible assets and intellectual property?
Intangible assets (IA) are identifiable non-monetary assets that are not physical in nature, such as brands, proprietary data, processes, know-how, technology; and key skills which are created by businesses to perform daily activities, innovate and create competitive advantage for the firm.
Intellectual property (IP), the most well-known subset of IA, refers to creations of the mind, such as inventions; brands; trademarks; copyrights; trade secrets; patents; designs; and databases used in commerce, which are protected by law.
Who should understand the basic concepts of intangible assets?
Everyone in an organisation should understand IA, including business owners, innovators, creatives, developers, inventors, entrepreneurs, attorneys, advisors, accountants, investors, etc. The asset has its greatest potential for an organisation when the collective knowledge is possessed by all its employees. For this reason, many companies looking to generate, organise, develop, and distribute knowledge throughout the organisation, have spent millions of pounds to develop and/or purchase formal knowledge and data management systems. The roadmap for the identification, capture, valuation, management and monetisation of intangible assets play a prominent role in building successful strategy-focused organisations.
Why is it important to understand intangible assets and their value?
While people often have a good idea of how to value their tangible assets in their business, they are often not as clear when they need to assess the value of their intangible assets. If entrepreneurs, investors and managers can estimate the value of their intangible assets, they could measure and manage their company’s competitive position, investment portfolios and overall IA/IP strategic roadmap much more easily and accurately, facilitating strategic decisions.
What can intangible asset valuations support?
IA valuations can support various purposes. One of the most important is to support the access to cash and funding, and to quarterly or yearly monitor the returns on investments in R&D or in developing a brand, for instance. The development of IA can also assist in obtaining governmental incentives such as R&D Tax Credits.
IA and IP valuations can support, for example:
· Access to Capital and Cash
· Raising Funding
· Company share issue
· Investment Portfolio Management
· Monitoring Returns on Investment
· Licensing Negotiations
· Asset Financing
· Asset Ownership Transfer
· Transfer Price Allocation
· Tax Planning
· Image Rights Licensing
· Mergers & Acquisitions
· Restructuring / Insolvency
· Distressed / Fire Sale of Assets
How are intangible assets valued?
At Valuation Consulting, our valuations are based on International Valuation Standards and on a combination of well-accepted, tried and tested methods using the following evidence-based approaches:
· Cost Approach: based on establishing the cost to replace the functionality of an asset, discounted for obsolescence.
· Market Approach: seeking to identify market comparators for transactions for a similar nature, where these can be found.
· Future Income Approach: using a bespoke financial model to calculate the net present value of future cash flows attributed to intangible assets and IP, discounted for risk.
All three approaches, properly applied, are recognised as valid and appropriate with the specialist field of IA valuation. Valuation Consulting has the financial, technical and legal expertise (supported by Stobbs) that ensures a consistent and independent valuation for those requiring transparency and robustness, as such funding bodies, investors, courts, arbitrators, regulators and tax authorities.
IA valuations are negotiation tools for strategic decisions.
So, whether you’re a more established business, or are just getting started, your intangible assets are key for your future success. By recognizing that these intangible assets are part of the bigger picture of the value of your business, brand and organisation, you are sure to help increase the value of your company and your investment portfolio, increase our brand strength and continue generating excess returns, driving your business forward.
At Valuation Consulting, a Stobbs’ Strategic Partner, their valuations are based on International Valuation Standards and on a combination of well-accepted, tried and tested methods using the following evidence-based approaches.
Talk to Fernando (firstname.lastname@example.org) about valuing our business or IP assets valuations to support your business to continue to generate excess returns for stakeholders and investors.