I have been discussing things a small business owner can and should do now, to create value when he sells the business later. First, I wrote about bucking the conventional wisdom of zeroing out you annual profits to limit tax and instead make it a goal to show decent end of year profits. Next, I wrote about taking your eye off the bottom line and giving some consideration to continuing to grow the top line revenues, so that you can demonstrate a 3-5 year trend of revenue growth. Today, I will talk about adding value by creating important assets that you can sell with your business and that give your business heft – intellectual property.
- Create, Protect and Maintain Intellectual Property. Most small businesses create some form of intellectual property, whether they know it or not. This intellectual property includes trade secrets (like recipes, formulas, or unique ways of doing business that give you an edge), trade and service marks (business or product names, slogans or logos used to market the business’s goods and services), copyrights (original expressive materials, like well-worded menus, brochures, books, computer programs, artwork, etc.) or even patents. And while small businesses that create patents often engage a patent attorney to prosecute and protect that patent, many of the other forms of intellectual property remain unrecognized, informal, unprotected and therefore shorn of much of their potential value.
A small business would be well served, years before it is ready for sale, to recognize, protect, and maintain that intellectual property. Trade Secrets can be formally recorded and protected from misappropriation, trademarks and servicemarks can be formally registered with the Secretary of State and with the United States Patent and Trademark Office, and copyright materials can be formally deposited with the Library of Congress. Doing this not only protects the intellectual property and gives it value (which may be able to be added to your balance sheet, creating both an asset and a balancing increase in equity), but also gives you a book of intellectual property you can deliver to a potential buyer which will increase his confidence in your business and increase the potential value of your business.
Next Time: Keeping Good Company Records