IP: what do I need to know?
1. What does IP mean?
IP stands for Intellectual Property. It’s the term used to describe things your business owns that can’t be physically measured. In most cases, you will have created them ‘in-house’, using know-how, effort and time (otherwise known as blood, sweat and tears). Some types of IP have special protection in law, but all IP adds value to your business. If you offer anything distinctive, you will undoubtedly own IP of some sort.
2. Why should I care about IP?
To be successful and competitive, you need to make the best use of all your resources. After your staff, your IP is probably the most important and valuable asset that you have.
The only reason your accountant isn’t regularly quizzing you about your IP is because its value is seldom reflected on your balance sheet. Your books only show the cost of things you’ve bought (like machinery and computers that wear out, break down and become obsolete). But these things don’t reflect what your company is worth.
3. What things are included under IP?
In the UK, as defined in law, IP has four varieties:
- Patents (new or improved ways of solving problems) – these need to be checked and officially granted;
- Trade marks (used to protect brands) – also requiring registration;
- Designs (the outward appearance of new things) – which can be registered or not;
- Copyright (the way ideas are expressed in words, music, drawings and other forms, including software code) – which doesn’t need registration at all in the UK.
However, IP is also an umbrella term for all the other important ‘intangible assets’ (other non-measurable things) your business owns. These can include trade secrets, processes, drawings or plans; contracts, relationships and customer or supplier insights; awards, permissions or endorsements.
4. How much is my IP worth?
The answer varies for each business. However, if your company were an iceberg, the fixed assets shown on your balance sheet would be the tip of it; around three-quarters would typically be hiding underwater, in your IP.
Of this IP, the specific things you can identify and use for purposes like financing are likely to account for 30-40%. And that, you may conclude, is a lot of value otherwise going to waste.