IP Value on Financial Statements

If a company did not acquire its IP, and only developed it internally, the Balance Sheet will not reflect any IP amount. While some discussion has surfaced within the Financial Accounting Standards Board to include a marked-to-market IP value for public companies, there is no current mandate for same.

In this current wave of technological innovation, IP often comprises 40% plus of the asset value for both public and private companies. When we are selling a firm with significant IP, we often place a value on the IP as part of the sale documentation. Buyers need to know that the Balance Sheet is usually understated.

In a recent assignment for a non-profit (NP), we valued the IP developed by the founders and operators of the NP. The report was also used to assign a reasonable royalty rate as compensation to the founders, as a key element of an overall compensation plan.