In my discussions of late I have found very few business owners with a healthy appreciation for the intrinsic value of the intellectual property inherent in their enterprises.  Sure, most in service industries understand the need to capture operational information in databases and procedures manuals, thereby avoiding the risks inherent in letting their IP leave the building at 5pm each day, but at a deeper level few seem to understand the threats and opportunities.   Restraint and confidentiality clauses in employment contracts also seek to mitigate the risk of value degradation by otherwise-motivated staff looking for a change in circumstances.

When considering an exit, business owners must pay attention to the need to ringfence their IP in order to underpin a market value.  As I have discussed in other articles, risk is a buyer’s/investor’s greatest concern and a business’ value is inextricably linked to its risk profile.  Similarly, interested third parties are often looking for untapped growth opportunities, once they are satisfied that the value of the business will not dissipate within a short period from the change in ownership.

In considering potential IP threats, did you know that unless you register your logo as a trade mark it is not protected?  What is legally preventing a competitor from a brand ambush?  Likewise with internet domain names, unless you register all variants that link to your brand there is nothing stopping a competitor, unwittingly or otherwise, from legally encroaching on “your territory”.  In instances like these, your brand – and therefore perceived business value – can be linked to a competitor’s in public perception, leaving your business at the mercy of their reputation.

Then there are the opportunities.  In highly competitive market sectors, differentiation by brand and service alone is difficult to quantify, and holds little weight with prospective purchasers.  However, there may be a system that has been created, expertise developed or an untapped trademark with broad application, each with its own commercialisation potential.  For potential business purchasers, registered patents, licensed IP and registered trade marks all hold significantly more appeal, particularly in cases where they have not yet reached the commercial arena.

So what can you do to increase business value by better managing your IP?  Check employment contracts for restraint/non-compete clauses and confidentiality undertakings, ensure you own appropriate domain names and ensure your databases are up to scratch.  The Australian Government has a dedicated department called IP Australia, which is a good starting point.  Alternatively, a good Trademark and Patent Attorney can provide some further insights into the risks that apply to your business or to look at potential opportunities.   Who knows, you might be the perfect candidate for franchising or licensing, which not only imposes a strict approach to IP protection, but also diversifies the business’ income streams and provides greater market penetration.

In service businesses in particular, IP is everything.  If you’re not protecting and managing it, your prospects at the time of exit are most likely compromised.