IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog article has been provided by Seth Rudin. Mr. Rudin is a senior business broker at IBA (www.ibainc.com):
Do You Own a Business Based on Intellectual Property?
Have you heard it’s hard to sell?
Many businesses have both tangible and intangible assets. Intangible assets are those that you typically cannot see or touch – software, patents, trademarks, copyrights, trade secrets, and other examples. It is important to understand how to sell a company that has intellectual property as part or all of the business. While selling intellectual property is similar to selling a retail establishment, it has some very specific differences. Intellectual property (IP) includes elements like inventions, art, and trademarks, protected by law to grant exclusive rights.
Some Examples of Intellectual Property include:
- Software a company designed and built for a specific purpose
- A process such as the internal operating software for a dispensing machine
- Survey drawings developed by a civil engineering company
- Software used to assist a team in auditing large amounts of data
- An engineering company’s template designs for commercial buildings (that are legally allowable to reuse for other client projects).
- And there are so many more!
Do not make the mistake and assume Intellectual Property is only valuable to you!
In today’s digital age, sometimes the most valuable assets are intangible. If you’ve built a company that involves intellectual property—whether it’s patents, trademarks, copyrights, or proprietary processes—there is value to what you have designed, organized, and written.
Like every business, there comes a time when you might consider the lucrative prospect of selling. Below, we explore the ins and outs of selling an intellectual property-driven business, from setting up a plan to safeguarding your innovative ideas (current and future).
Key Steps To Increase the Value of Your IP Business
You may not be able to do all of the steps below but consider each one as a way to increase the value buyers will place on your business.
Step 1: Actively Utilize IP for Sales
Ensure that your intellectual property (IP) assets are actively integrated into your business operations, contributing to current sales or enhancing overall business efficiency. Demonstrating the tangible impact of your IP on your company’s revenue streams will significantly increase its perceived value to buyers.
Step 2: Secure Patents for Higher Value
If you have not yet received patents, focus on obtaining granted patents for your innovations. These carry more value in the eyes of potential buyers. Expedite the patent process, if needed, to secure issued/granted patents rather than relying on patent-pending status, which may be viewed as less certain and, therefore, less valuable.
Step 3: Register and Safeguard Trade Secrets
If your business relies on proprietary information and processes not known to the public, ensure that trade secrets are well-maintained and registered for added protection. Effectively managing and legally safeguarding trade secrets can offer a longer-lasting and cost-effective alternative to traditional patents.
Special Note on Patents vs Trade Secrets
Patents last 20 years; however, registered trade secrets last longer. Trade secrets last as long as they are kept secret. In some ways, a registered trade secret can be more valuable and is cheaper to issue than a patent. Patents protect against inventions but can be reverse-engineered.
Step 4: Clarify the Distinction Between Copyrights and Patents:
Do you have both copyrights and patents? If so, clearly document the differences to help potential buyers. Copyrights protect written or artistic expressions, while patents cover scientific creations, inventions, and processes. This clarity helps communicate each type of intellectual property’s unique value to the business.
Step 5: Create Recurring Revenue Streams:
Locate recurring revenue methods, such as licensing agreements, subscription models, or ongoing service contracts. IP with consistent and recurring revenue streams is generally more attractive to buyers, providing a predictable income flow over project based or one-time sales.
Step 6: Consider Scaling into New Markets
Even if you don’t aggressively enter those new markets, you’ll want to list them to demonstrate how your IP might enter them. Potential buyers often consider an untapped market as a viable revenue stream.
Step 7: Evaluate Industry and Market Trends
Staying informed about trends within your industry and the broader market is crucial when selling an intellectual property business. Sharing this knowledge demonstrates to potential buyers that your business is aligned with current market demands and well-positioned to adapt to evolving industry landscapes. This potential growth adds to the perceived value of your intellectual property, showcasing its relevance and future viability.
Other Questions To Consider
- Do you want to separate any tangible and intangible assets?
- Do you have all the legal paperwork completed and up to date?
- Are the documents legally enforceable?
- Is your intellectual property transferrable?
- Do you have new ideas you have not developed yet? Are you selling those too?
- Do you want continued residual income by being a subject matter expert after the sale?
Selling a business with intellectual property is a strategic and intricate process that requires careful consideration of many related and unrelated factors. All the steps above need to be considered while also protecting your intellectual property (both current and future). Like any commercial sales transaction, a solid and detailed plan before setting a sales price ensures you are adequately prepared to negotiate and will increase the likelihood that you will be compensated fair market value for your intellectual property.
If you have questions relating to the content of this article or the process associated with selling or buying a business with intellectual property in Washington or Oregon, Seth Rudin would welcome the opportunity to talk with you. Mr. Rudin is licensed to sell businesses & real estate in both Washington and Oregon. Mr. Rudin can be reached at (425) 454-3052 or seth@ibainc.com. He is also a wonderful resource for attorney referrals for assistance in protecting your intellectual property.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, accounting, legal, and financial planning communities on subjects relevant to the purchase & sale of privately held companies and family-owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.