Why should I value my IP assets?
Businesses often value their physical assets but forget about valuing their IP. It's important to recognise the value of these assets early and protect them for the future. The four types of IP, which are intangible assets, can be of significant value to your business.
Reasons to protect your idea with IP:
Registering your intellectual property gives you the exclusive right to sell, promote or develop a product for a certain length of time.
Give you a competitive advantage
IP rights can provide many advantages, including:
- Making your asset more valuable to investors
- Allowing you to decide who can use your IP and how it can be used
- Being used many times and licensed to several licensees in different geographic regions
- Reducing the chance of your products and/or services being replicated.
You can sell your IP rights for financial gain.
IP rights encourage people to create better products and services that help people improve their lives.
How can I value my IP?
To protect your intellectual property, start by doing an IP audit. There are two main steps involved:
1. Identify your IP assets
You should value your IP assets as you would value physical assets, but first you need to know what they are.
To identify your assets, ask these questions:
- What are my businesses’ key products or services?
- What legal rights do I have for my products or services?
- How do my legal rights improve my place in the market?
Having answers to these questions will help put a fair value on your IP.
2. Place a value on your IP
IP assets should be valued the same way as physical assets. Valuing your assets helps you:
- Determine the overall value of your business
- Provide a tool to measure and manage your assets
- Attract potential buyers and investors
- Provide security and backing for lenders
- Provide tax benefits (tax deductions)
- Reduce the proportion of your business’ net worth attributed to goodwill.
How do I measure my IP's value?
The value of intellectual property can be measured by:
- Cost basis
- Fair value basis.
The final valuation price will be decided when the IP gets sold or transferred.
Common IP valuation methods include:
- Relief from royalties
- Excess profits or notional royalties payable
- Capitalisation of earnings
- Net present value of incremental cash flows
- Gross profit differential
- Premium sales price
- Comparable market transactions
- Brand strength
- Real options.
It's important to recognise the value of your IP assets early and protect them for the future. We recommend engaging an IP professional, such as an accountant, to help you accurately value your IP.