Businesses have long overlooked the value of brands and broader intangible assets, even though understanding their value could ensure survival and future growth.
The coronavirus crisis has created an acutely uncertain environment for businesses. Many are using physical assets to access the working capital needed to survive. This works for companies with heavy machinery, a warehouse facility or a large debt book. But what about businesses whose rapid growth is driven by intangible assets, such as the technology companies that could be a future Amazon, Google, Apple or Microsoft?
High-growth startups, small and large, face a heightened issue around working capital in the current economic squeeze. In the UK, a group of 20 technology entrepreneurs recently wrote to the Treasury calling for more comprehensive financial backing, without needing to provide large personal guarantees on COVID-19 business interruption loans.
The call has so far been largely rejected, despite those businesses’ potential as economic growth drivers with the flexibility to respond to pandemic pressures.
IAs can be significant yet overlooked
Even if not tech-focused, all companies own intangible assets (IAs), such as brands, websites, client lists and databases, and often the value is both significant and more than anticipated. Knowing the value is key to effective decision-making, driving revenues and generating working capital through loan collateral.
“It is much trickier for executives to get their heads around valuing intellectual property than it is to put an exact worth to something more tangible such as a building or an item of plant equipment,” explains Julius Stobbs, founder of IA management firm Stobbs. “With no obligation to account for these assets, even the most sophisticated of organisations usually doesn’t have any background understanding of the actual financial value of their ideas.”
Like the Antiques Roadshow stereotype, people take a different approach when they discover the dusty painting in their attic turns out to be a Rembrandt
IA valuation is not yet mandated by standard accounting procedures, but the capability does exist. It is a multidisciplinary and technical process, requiring the combination of legal and valuation skills to properly identify IAs, their protection and risks. It is relatively inexpensive compared to the gains on offer.
IA assets are often a company’s single most valuable possession, a fact recognised by a major sports club with which Stobbs’ experts recently worked. “The club was weighing up whether to spend £100,000 a year protecting its IA online. Once we established that the value of the brand was worth more than either its stadium or its first-team squad, the need and affordability of protecting it became very obvious,” says Stobbs.
Over the last five years, Stobbs’ team of specialist valuers and legal experts has helped more than 2,000 businesses to gain a much clearer understanding of what their IA is really worth and how to effectively capitalise on those assets.
IAs unlock revenue streams
“Like the Antiques Roadshow stereotype, people take a different approach when they discover the dusty painting in their attic turns out to be a Rembrandt,” says Stobbs. “When companies realise the true value of their brand assets, this tends to prompt a much stronger inclination to protect IA and monetise it effectively, protecting and growing their business.”
In some circumstances, particularly where insolvency is a risk, a business that understands the value of its IA can quickly reposition, secure support and drive new revenues.
Stobbs worked with a well-known bag and accessories retailer whose store business entered administration, owing £8 million to creditors. Aspects of the business needed to close, but the company’s brand was still worth £40 million. Against this asset, investment could be taken and a successful international distribution business was quickly created.
Most companies own valuable IA, but many remain oblivious to its worth. With COVID-19 badly hitting many sectors of the economy, proper strategic thinking around IA, including finding companies’ overlooked masterpieces, could be the difference between survival or demise, recovery or collapse and growth or stagnation.
On May 21, Stobbs is running a virtual summit on intangible asset monetisation. Sign up at summit.iamstobbs.com
To discover the full breadth of what makes up intangible asset management, find us at iamstobbs.com