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, existence of PA is not 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 loose their leading positions in the market.
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 intangible assets and know how to receive from their intellectual property (IP) real financial benefits.
Today we will reveal this specific knowledge. And first rule, which should be mentioned in this direction, is proper capitalization of previous expenses and converting them into the financial value of intangible assets of business.
1. INVESTMENTS
When you want to launch new business project with partners, every member of founders' team should describe the form and money value of contribution - money, land, equipment or IP.
Usually in investment project are participating 2 sides: author of business idea (often with product or service prototype) and investor, who will finance these project.
And if in case with investor the value of its contribution is clear - there are real money, contract price of equipment or average rent rate of the land, 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 the IP-contributor of the project create the initial financial base for adequate negotiations with future business partners.
Also capitalized IP-works (brands, technologies, etc) in already existing legal entities could be used instead of physical assets for forming the founding (authorized) capital in new created daughter companies and sub-divisions.
2. CREDITS
Valuated IP-assets could be used as a pledge for receiving bank credits and investment loans.
Wide recognition of brand, high-rated web-sites and mobile applications are representing today real values.
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 the credits from financial instituitions and loans from investors.
3. SALE OF BUSINESS
After increasing value of business through the capitalization of IP-assets owner can receive additional profit comparing to selling only physical assets.
According to UAE laws such intangible asset as a corporate/product brand, web-site or mobile application could be sold only if their have properly settled documents with valid protection of IP-rights.
4. ROYALTIES
After achieving sustainable and profitable functioning of business in one city, usually owner of 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 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 partners 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 afterwards 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 business partner.
6. REIMBURSEMENTS
Every successful business project attract 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 high value of IP-assets (corporate or products brands, package designs, web-site or mobile applications) allows to rightholder receiving increased reimbursements from unfair competitors for IP-rights violations.
