How to Value Your IP Assets
Business owners often overlook the value in their business’ intellectual property. However, a business’ IP can end up being one of the most valuable assets it owns. This article outlines:
- the two main steps that you should take to value your IP; and
- why a business might choose to value its IP.
Before Valuing Your IP Assets
Before you even begin to consider valuing the IP in your business, you must first determine what IP your business actually owns. You can determine the source of your business’ IP by conducting an IP audit.
An IP audit is the systematic review of a business’ intellectual property.
An IP audit not only identifies the IP that exists within the business, but also identifies other important features such as:
- the legal owner of the IP; and
- how the business should use its IP.
Once you have completed an IP audit, you should compile a database or a register to keep track of the IP assets within the business.
IP audits are usually conducted by a team of specialised IP lawyers and representatives from your business’ management. Whilst there is no formal requirement that a specialised person must conduct the audit, it would be beneficial to engage a lawyer who has expert knowledge in identifying IP.
Once you have determined the source of your IP assets and the benefit of these IP assets through an audit, you can then undertake IP Valuation. IP valuation can be important for:
- legal and accounting requirements; and
- taxation liabilities.
Similar to conducting an IP audit, professionals and specialists in the field should conduct an IP valuation. You should note that the value of your IP the specialist determines is only a realistic estimate of the IP value. Only once you sell or transfer the IP can you determine the actual value of the IP.
Methods Of IP Valuation
There are three different methods of valuation that a specialist in the field might use to value your IP.
The first method, known as the income method, is the most commonly used for IP valuation. Essentially, this method determines the value of your IP based on the amount of income that the IP is expected to generate. This is then adjusted to its present value.
For example, a valuer might determine the value of your copyright on the basis of the income method if your copyright is being regularly licenced to other businesses.
Another method you can use to value IP is the market method. This is where the value of your IP is compared to the price paid for the sale of similar IP assets in comparable circumstances.
For example, if a bookstore recently sold its trade marked logo to another company, a valuer might determine the value of your trade marked logo based on the other logo’s sale price if your business was a comparable book store.
Lastly, the cost method determines the value of IP by calculating the cost of a similar IP asset. This method, however, cannot account for any unique characteristics of your asset and relies on equivalent IP assets to be in existence.
Why Value Your IP Assets
As mentioned previously, IP valuation can be important for accounting and taxation purposes. However, IP valuation can also be useful in the instances where you want to:
- improve business decision making, particularly in relation to future growth and investment opportunities;
- use IP assets as collateral for obtaining finance for your business;
- attract investors and venture capitalists to invest in your business;
- negotiate licences for your IP assets; and
- settle disputes in the instance where someone has infringed on your valuable IP rights.
Before you begin to undertake IP valuation, it is important that you identify both the:
- source of the IP within your business; and
- benefit of the IP to your business.
A specialist lawyer can help conduct IP audits to identify the IP your business owns and uses. Once you have identified the IP assets, a specialist expert can help estimate the value of the IP asset based on a valuation method that best suits your IP. If you need help with undertaking an IP valuation, our experienced IP lawyers can assist. Call us on 1300 657 423 or complete the form on this page.
Frequently Asked Questions
IP audits are usually conducted yearly to ensure that your IP information is up to date. However, you can undertake IP audits more frequently depending on the size of your business and how often it uses IP.
There are no strict requirements that a particular person conducts your IP audit or your IP valuation. However, it would be wise to contact a specialist in the field to undertake the audits and valuation.
The value of your IP depends on a range of factors. For example, a trade mark is closely linked to the goodwill of a business. In this instance, the stronger your business’ goodwill, the higher the value of your business’ trade mark.