BUYING A BUSINESS

Rather than start a business from scratch, many people buy a business that’s already established. When you buy a business you buy more than the stock or the right to sell products out of an existing shop. You are generally buying the IP and other intangible assets of the firm. Whether it’s their logo, patents or client list, you are buying their intellectual property and the rights to use it. And just as you’d need to value the stock, fixtures and fittings, work in progress, current contracts and any hire purchase or lease agreements, you need to value the IP and other intangible assets that you are buying.

The following IP and other intangible assets might be identifiable in a business:

• Patents and trade marks

• Domain names

• Copyrights and industrial design registration

• Franchises and licences

• Distribution agreements

• Newspaper mastheads/publishing rights

• Secret processes and formulas

• Information databases, including client lists

• Computer systems software

• Core technology.

In simple accounting terms, identifiable intangible assets such as trade marks, patents or licences will be recorded at their fair values on the acquisition date of a business. In some cases, amortisation, (which is like depreciation) can apply to IP assets. This implies that their overall value can fall each year, just as the value of office assets (like computer equipment) does. On the other hand, successful sales of products and services may mean that the value of patents and trade marks increases.