Your most valuable business assets may not be on the balance sheet
Ask a business owner what their company owns and the answers usually come quickly.
Equipment. Stock. Vehicles. Property. Cash.
But for many modern businesses, those aren't necessarily the assets creating the most value.
It may be the brand customers recognise.
The software the business has developed.
A patented technology.
Product designs.
Confidential manufacturing knowledge.
Data.
Copyright in content or code.
Or simply the systems and intellectual property that allow the business to do something competitors cannot easily replicate.
These are intangible assets.
And they are becoming increasingly important to the way businesses are valued.
The way businesses create value has changed
There is growing discussion among accountants, valuers and investors about a basic problem: traditional financial statements do not always provide a complete picture of where value is being created in a modern business.
Investment in software, technology, data and other internally developed intangible assets may not appear on a balance sheet in the same way as a building or piece of machinery.
That does not mean it has no value.
In fact, the opposite may be true.
International valuation experts are increasingly examining assets including brands, technology, data, customer relationships and human capital as businesses become more dependent on intangible value.
For growing businesses, that should prompt a different question.
What actually makes this business valuable?
Start with the things a competitor would want
One useful way to think about intangible assets is to imagine a competitor looking at your business.
What would they most like to copy?
Your name?
Your product?
Your technology?
Your software?
Your customer database?
Your manufacturing process?
Your designs?
Your content?
Your know-how?
The answer will often point directly towards some of the most important intangible assets in the business.
But recognising that value is only the first step.
You also need to work out whether you actually own it — and whether it is protected.
A valuable brand without protection is still vulnerable
A business may spend years building recognition in a name or logo.
But registering a company name, domain name or ABN does not necessarily give the business registered trade mark rights.
That distinction often becomes much more important as a business grows.
The bigger the reputation becomes, the more expensive a forced rebrand can become.
Trade mark registration can turn an important business identifier into a clearer and more enforceable IP asset.
Innovation needs the same attention
The same principle applies to innovation.
A new product may contain several different forms of intellectual property.
Its technology might potentially be patentable.
Its appearance might be protected through registered designs.
Its software, drawings and documentation may attract copyright.
Its manufacturing techniques or commercial information may be protected as confidential information or trade secrets.
And the product name itself may require trade mark protection.
There is rarely one single "IP right" covering everything.
The important step is identifying what has been created and matching it with the right protection strategy.
Ownership can be just as important as registration
Another common problem emerges when businesses assume that because they paid for something, they automatically own all of the IP in it.
That is not always the case.
Businesses frequently use:
contractors to develop software;
agencies to create branding;
designers to develop products;
consultants to produce technical material;
employees and founders to develop technology or content.
Who actually owns the resulting intellectual property can depend on the circumstances and the contracts in place.
That question may seem academic when a company has three people and little revenue.
It becomes considerably less academic during investment, acquisition or a dispute.
A buyer considering paying millions for a technology business will want to know that the company actually owns the technology.
IP becomes particularly important when businesses transact
Intangible assets also come into sharper focus when a business raises capital, enters a joint venture, licenses technology or prepares for sale.
Investors and buyers increasingly want to understand what sits behind the company's competitive advantage.
That means asking questions such as:
What IP does the business own?
Is it registered?
Who created it?
Has ownership been properly transferred?
Does the business rely on licences from somebody else?
Could a competitor legally copy it?
Are confidential assets actually being kept confidential?
A business that can answer those questions clearly is in a very different position from one that simply says, "We have some IP."
Valuation and protection are connected
There is another important point.
Valuing an intangible asset and protecting it are different exercises.
But they are closely connected.
A brand may have commercial value because customers recognise it.
A patented technology may have value because competitors can potentially be excluded from using the invention.
A trade secret may have value because competitors do not know how the business does something.
A registered design may have value because a successful product has a distinctive appearance that cannot simply be copied.
In each case, the strength of the underlying legal rights can affect how defensible that value really is.
This is one reason businesses should not wait until a transaction or dispute before looking seriously at IP.
Don't wait until someone asks what your IP is worth
The broader valuation conversation is moving quickly.
The accounting profession itself is examining how reporting can better reflect a business world increasingly driven by intangible assets. The podcast discussion notes that the principal international accounting standard dealing with intangible assets dates from 1998, while the nature of intangible investment has changed considerably since then.
Businesses do not need to wait for accounting standards to catch up.
They can start by identifying what intangible assets they have today.
Then ask:
Do we own them?
Are they protected?
Are there gaps?
And if this asset is important to the value of the business, what are we doing to stop somebody else taking advantage of it?
Because increasingly, the most important assets in a business may be the ones you cannot physically touch.
Protect the value you're creating
If your business is growing, developing new products, building technology or creating a valuable brand, now is the time to understand what intellectual property sits behind that growth.
Regional IP can help you identify, protect and manage the IP assets that matter to your business — before they become an issue in a transaction, expansion or dispute.
Talk to Regional IP about building an IP strategy around the value your business is creating.