Intellectual property can account for a significant proportion of a company’s value. An intellectual property valuation may be required in the following circumstances:
- for accounting or tax purposes
- for use in litigation
- for transactional purposes, including for example on a divorce or bankruptcy, on a sale of a business or a company merger.
Intellectual Property valuation methodologies
The approach to a valuation will differ depending on the reasons for which it is required.
- The cost method which looks to the historical cost incurred to develop and create the intellectual property
- The market method looks to the demand and supply of the particular asset
- The income method seeks to assess the cash benefit that an asset will generate or potentially save over a period of time, and from this calculate a figure to represent a present day amount.
A company’s current and future competitive market position, its business model and industry will all be relevant considerations in determining the method used and the value.
Your business will be more valuable if it has understood what drives value, and has an effective IP Strategy in place.