Intellectual Property

[adridude]

Hi,

 

I was just reading an interesting book which outlined that Intellectual Property is actually and can be quantified in monetary value.

 

How exactly is this worked out?

 

As a director, and as a programmer, we have several "programs" out there which have unique aspects...

 

ow does one quantify the actual value of the Intellectual part of the business?

 

It is quantifiable by the amount of sales multiplied by the average cost to design it?

Is it quantified by what a director believes it could attribute to the company in its lifespan?

 

I thought this was interesting so I'd love some input!

 

Cheers

 

A

[ericsbrother]

In a way it is a bit like valuing goodwill or a brand name, it can be whatever you want or believe it to be for a defined purpose. It really only has a value if you are intending to sell the company or want to raise capital where you can then show it as a asset on your books otherwise trying to evaluate it will just be meaningless.

Are you planning to sell shares in your company or borrow from the bank? Are you going to sell the rights to any of the intellectual property? If not then the IP has no place on your balance sheet as it could attract a tax liability without offering any increase in the value of the company.

However the general formula is 8-10 times the superprofit generated by the product. So, for example you sell accounting software the superprofit is the profit above the norm for that product so if sage sells for £10k and your product sells for £12k then the superprofit is £2k (assuming base costs are same). So your IP would be valued at £16-20k The assmuption is that your product doesnt have a short lifespan. Essentially it will be a figure that you can borrow to and against so the bank may have a different idea.