With the rapid growth of the service economy and the domination of the information technology sector, many small to medium enterprises and larger companies are looking to capitalise on the reality that they own or have control of numerous intangible assets, namely intellectual property, that is a very valuable asset and one that should be protected. Knowing what the intangible assets of an enterprise are worth can make a business far more attractive to possible investors and can make financing a more straightforward proposition.
we look at ip valuation, what we are doing is applying a concept of value and the legal concept of property. We are looking at the ability of an asset to generate a return then applying a discount rate to that return, at a specific place, at a specific time, under specific circumstances.
There are three methods of valuation when looking at ip.
The Cost Approach:
The cost approach is quite often used when valuing software that does not directly generate income or may not generate income for several years. As the benefits deriving from the software may not be available for a number of years, this is the only practicable approach to use.
The Market Approach
The market approach is quite often used when valuing a business, however it should be noted that even though it uses empherical evidence of value, it is almost impossible to find truly comparable businesses. At best it is a “rough guide” and maybe useful as a checking mechanism when compared with other valuation approaches. This approach is difficult enough when valuing assets such as bricks and mortar because it is never possible to find a transaction that is exactly comparable. In valuing an item of intellectual property, the search for a comparable market transaction becomes almost futile. This is not only due to lack of compatibility, but also because intellectual property is generally not developed to be sold. By its very nature ip is unique.
The Income Approach
The theory of the income approach is that the value of a company or its ip is the present value of the future economic benefits (income stream) it is expected to provide. The economic benefits can be determined from the historical results or future projections. The methods used are the discounted cash flow DCF or the capitalisation method, depending on the stability of the growth rate. The time value of money is calculated by adjusting expected future returns to today’s monetary values using a discount rate. The discount rate is used to calculate economic value and includes compensation for risk and for expected rates of inflation.
Who We Are.
When you need a business valuation specialist, contact Lee Goldstein at brv.com.au. Lee is one of the leading experts in Australia in providing a concise, transparent and understandable business valuation. Since 1986 he has valued a diverse range of private, public and multi-national companies for various reasons. Lee values businesses Australia wide as well as overseas. Businesses as diverse as a Queensland Radio Station, a Melbourne Japanese Restaurant, the intellectual property used for crypto currency or a Marine Electrical Company in the USA & Hong Kong.