Originally Posted by JacquiPryor
We have a client specifically, who provides services in connection with creating/implementing exit strategies for business owners - with their sound belief that any one in business should have a 'plan' for exiting from that business; a part of the service she would like to provide is brief advice/comment on the value of registering IP as a part of a sound future exit plan, but is looking to be able to extend on that and be able to confirm a more precise monetary value; for example if she is helping a client with their exist strategy who holds 2 trademarks and has been in business for 10 years, how much are those 2 trademarks worth as assets?
Great question. "Worth to whom" is the real question here and what will they do with them if they buy the trademarks. Trademarks are just like any other assets in that they need a willing but not anxious buyer to need the asset to generate income or to help leverage other assets to generate more income. Domain names are a good example. I could say own the domain name zxrtsda.com that cost me $10 to register 10 years ago, and I could own Mercedes.com which also cost me $10 to register 10 years ago. The fact that they are intellectual property rights that have existed for 10 years is irrelevant, what is relevant is to find someone that needs that intellectual property to generate income. Obviously mercedes.com would be worth more in this case out of those two domains. But worth how much depends on the person buying it.
An internet marketer might calculate that he can place advertising on the page and generate $100,000 profit, He might pay say $500,000 for the domain. But Mercedes might want the domain as part of their overall brand protection and pay $1m. On the other hand BMW might get in quick and offer $5m so they can attack the Mercedes brand.
As you can see, you cannot put a strategic value on intellectual property without knowing exactly who the buyer is and what they need it for. The best we can do is to do some research and make some educated assumptions.
We can however calculate the value in use to the current owner by undertaking a business valuation based on current and projected profitability then subtracting the value of the tangible assets to leave a residual of goodwill and intellectual property. This is the way I would usually begin the calculation of intellectual property and then add a premium if we believed there is a buyer out there that could generate more profit from the intellectual property than we currently can for some reason.
I could go on for hours about the concepts but I think you get the picture. Anyone that starts quoting 'rule of thumb' benchmarks to value businesses or intangible assets is being lazy and doesn't understand how it all fits togther. There is no such thing as a precise monetary value of a trademark in isolation.
I guess the unfortunate upside is that many people buy businesses through brokers without getting proper valuations and take the listing price as given and try to negotiate down as you would with a house, but this obviously makes no sense. To me it's a bit like stock traders that use chart movements to buy and sell shares, it makes no logical sense, but if many others are doing it you can predict what the sheep will do and pre-empt their moves.
I'm happy to be put in touch with you and your client if you want to discuss how to approach the whole question of valuing intellectual property for exit planning purposes.
Climax Business Strategies http://www.climaxbusiness.com.au