6 Financial BENEFITS of capitalized Intellectual Property Assets
In the last 20 years became definitely clear that success of the business depends on such intangible assets (IA) as companies' brand recognition, high competence of workers, actual clients' database and close relations with decision-making persons, high-rated website, non-availability for competitors of technologies and knowledge, internal corporate standards and HR-management system, attractive package design, effective marketing and advertising strategies.
Today - buildings, money, equipment and other physical assets (PA) could not be considered as key competitive advantages because without proper management system and well-thought-out business model, the only existence of PA in the company is no guarantee of successful business activity.
Extinction cases of companies with substantial PA more and more often confirm this truth: Nokia, BlackBerry, Chrysler, General Motors, Lehman Brothers, American Airlines, WorldCom, Endeavour Oil and Gas International Corporation, Pacific Gas & Electric Co - all these companies owned multimillion PA and had a huge number of employees but without sufficient level of intellectual capital, business ideas, and innovations - all they lose their leading positions in the market, and some of them are finished with bankruptcy.
And what we can see now in the world economy:
- the world's largest taxi company owns no vehicles (UBER);
- the largest accommodation provider owns no real estate (AIRBNB);
- the most popular media does not have journalists (FACEBOOK);
- the most valuable photo company sells no cameras (INSTAGRAM);
- the fastest growing television network lays no cables (NETFLIX);
- the most valuable retailer has no inventory (ALIBABA);
- the world's biggest shopping community owns no inventory (LYONESS);
- the most popular fitness and well-being company has no gym (NEWME);
But all these new market leaders own essential intangible assets and understood different ways how to receive real financial benefits from their intellectual property (IP).
Today we will reveal this specific knowledge. And the first rule, which should be mentioned in this direction, is mandatory capitalization of previous expenses and returning major part of the spent money back to the company accounting balance sheets through converting outlays into the intangible assets of business with financial values.
When you want to start a new business project with partners, every member of founders' team should describe the form and money value of their contribution - money, land, equipment or IP.
Usually in investment project are participating at least 2 parties: author of the business idea (often with product or service prototype) and investor, who will finance this project.
And if in a case with the investor the value of its contribution is clear - there are real money, the contract price of equipment or average rent rate of the land/venues, for authors of business ideas and IP-owners is too difficult to prove the real value of their intellectual contribution.
Therefore - previously capitalized IP-object with concrete money value allows to IP-contributor of the project create the initial financial base for adequate negotiations with future business partners concerning shares distribution.
Also capitalized IP-works (brands, technologies, etc) in already existing legal entities could be used (instead of money physical assets) for forming the founding /authorized capital in newly created daughter companies or any other forms of sub-divisions and affiliated structures.
The most interesting thing with capitalization is the fact, that evaluated IP-assets could be used as a pledge for receiving bank credit or investment loan.
Wide recognition of brand by customers, high-rated websites and mobile applications are representing today real values, and stimulated sales and growth of the business.
But the most common problem is lack of knowledge by IP-owners - they absolutely do not know how to present their money-generated intangible assets as collateral for receiving the credits from financial institutions or loans from investors.
3. SALE OF BUSINESS
After increasing value of the business through the capitalization of IP-assets owner on a case of sale its business to the new owner can receive additional profit comparing to selling only physical assets.
According to UAE (and many other countries) laws, such intangible assets as a corporate/product brand, clients database, trade secrets, website or mobile application could be sold only if they have properly formalized documents with the valid protection of IP-rights.
After achieving sustainable and profitable functioning of business in one city, usually, owner of the business is trying to create sub-divisions in other regions.
Most efficient ways in this directions are licensing and franchising, while these legal forms of brands' territorial expansion do not need to spend own money for new company registration, buying of equipment and staff recruitment - all these expenses will be covered by the franchisee.
And capitalized IP-assets in form of brand value allows to the brand's owner put in the licensing/franchise agreements contract heightened rate of license/franchise fee.
5. PRESTIGIOUS STATUS
Today is a common practice when a partner asked about the price of your business.
Nice presentations and creative marketing materials are of course important for positive impact on the decision-making person, but afterward is very difficult to prove your financial sustainability without serious money indicators of current business statement
High-valuated price of business can confirm reliability and confidence of partner.
Every successful business project attracts not only investors/partners but also unfair competitors, who want to duplicate efficient working ideas/works and immediately start sales with the aim to quickly pick up the market share and consumers.
In such cases, the high value of IP-assets (corporate or products brands, package designs, website or mobile applications) allows for rightholder receiving increased reimbursements from unfair competitors for IP-rights violations.
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