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Are you well known in the market and mainly gaining new clients just with word-of-mouth?

You undeniably have intellectual property (IP) assets and probably don’t even know it!

Valuing your IP makes your business more attractive to potential investors and buyers, especially if that value can be formally recognised for accounting purposes.

CPA Australia - IP Valuations - Fact SheetYour assets are not limited to those you can touch and see (building, machinery, and so on), you also own what we call intangible assets, intellectual property is part of those intangibles assets.

Research indicates that about 70% to 80% of a company’s market capitalization comes in the form of intangible assets, which include intellectual assets such as patents, trademarks, copyrights, and other business knowledge and know-how and it doesn’t concern only big groups.

The two main benefits of increasing your assets are:

    1. It allows you to improve your debt ratio, that is to say, increasing your capacity to borrow money; and
    2. You are more likely to be able to sell your business at a higher price.

 Valuing intellectual property is not an easy thing.

The three basic valuation methodologies are:

    • The cost approach: this method focuses on substitution. This means that the worth or value of an IP asset is no greater than the costs involved to obtain or reproduce the asset.
    • The market approach: is applicable when a truly active marketplace exists and actual comparable transactions can be found.
    • The income approach: is based on the assumption that the value of a piece of IP today results from the financial benefits that can be generated and estimated in the future for whatever remaining expected useful life the IP may contain.

Whatever the method of valuation chosen, IP can have multiple values at the same time and all those values can be correct simultaneously. That’s because, unlike real estate, IP can have vastly different values depending on who owns it and how they intend to use it.

To undertake a valuation of your IP, it is recommended that you contact a qualified professional. It is important to note that Australian Accounting Standards have strict criteria for identifying and valuing IP for accounting purposes.

 

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