Appraisal Economics performs appraisals of employee stock purchase plans (ESPPs) for financial reporting, tax compliance, and other purposes. Often, these valuations are required under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic No. 718, “Compensation – Stock Compensation” (ASC 718).
An ESPP provides the opportunity for employees to purchase shares of the company’s common stock through accumulated after-tax payroll deductions. These plans provide an effective way to incentivize and compensate employees. They also benefit the issuing company by lowering cash compensation costs and providing tax advantages. There are two main categories of ESPPs:
Compensatory Plans – These plans involve an option-like feature, as the purchase price is established based on the lesser of: (i) the stock price on the grant date and (ii) the stock price on the purchase date. These plans may allow the employees to purchase stock at a discount to the publicly traded price—up to 15 percent. The per-unit value of an award is economically analogous to a financial instrument known as a “look-back option,” and can be valued using option pricing models such as Black-Scholes-Merton, binomial or lattice models, or Monte Carlo models depending on the specific terms of the ESPP. These plans provide a tax advantage to the issuer as they are recorded as an expense when the options are granted.
Non-Compensatory Plans – These types of plans are much simpler and do not incorporate look-back features. They are used to diversify the shareholder base as they are open to all employees on an equal basis, and the discount to the publicly traded stock price is limited to 5 percent. Non-compensatory plans generally do not provide a tax advantage to the issuer as they are not reported as an expense, but rather treated like a regular stock sale.
Common Types of Compensatory ESPPs
Type A – employees purchase shares at a discount to the lower of: (i) the grant date stock price and (ii) the exercise date stock price. The maximum number of shares purchased is limited to the cumulative payroll withholdings divided by the grant date share price.
Type B – identical to the Type A plan, except that if the exercise data stock price is lower than the grant date stock price, the employee can purchase as many shares as the cumulative withholding amount permits.
Type C – employees purchase shares at the lower of: (i) the grant date stock price and (ii) the exercise date stock price, on multiple purchase dates within the duration of the plan.
Type D – similar to the Type C plan, but with a reset mechanism. If the stock price is lower than the grant date stock price on any of the multiple exercise dates, the employee is able to purchase stock on future exercise dates at the lower of: (i) the reset stock price, that is, instead of the original grant date stock price and (ii) the exercise date stock price.
Type E – this type of plan is similar to the Type C plan, but includes a rollover feature. If the market price of the stock at the end of any purchase period within the duration of the plan is lower than the stock price at the original grant date, the plan is immediately cancelled after that purchase date and a new plan is established using the then-current stock price as the new base price.
Type F – this type of plan is similar to the Type C plan, except the employee may elect to adjust the amount of the payroll witholdings after each discrete purchase period within the duration of the plan.
Type G – this type of plan has a single purchase period with variable withholdings. The employee may increase or decrease the dollar amount or percentage of salary withheld prior to the exercise date.
Type H – this type of plan combines the features of Type C and Type G plans. There are multiple purchase periods within each plan, and employees may elect to increase or decrease the amount of salary withholdings.
Type I – this type of plan is the same as the Type G plan, except the employee is allowed to make cash infusions after increasing the withholding amount. The effect is that if an employee increases the withholding amount, the employee can contribute catch-up contributions for periods prior to the change in withholding to give the effect of having participated at the higher rate from the beginning of the plan.
Valuation of a Compensatory Plan
The methodology for valuing compensatory plans involves complex synthetic structures and option pricing models such as the Black-Scholes-Merton model. The valuation of a compensatory plan must consider the amount of any discount from the publicly traded stock price, the duration of the ESPP, the volatility of the company’s common stock, whether the number of shares is limited by any variables other than the cumulative payroll withholdings, and other factors.
Appraisal Economics has extensive experience valuing ESPPs for a wide range of companies. Our analysis is fully supported by a detailed narrative report suitable for review by independent auditors, the Securities and Exchange Commission, and the Internal Revenue Service.
Appraisal Economics has an experienced team of highly qualified professionals with decades of valuation experience. We provide a full range of valuation services, including purchase price allocations, solvency opinions, portfolio valuations, and business valuations. To learn more about how our team of experts can meet your stock-based compensation and other valuation needs, please Contact Us.
Compensation has, in many cases, moved beyond annual salaries. Most companies offer a range of deferred compensation options in addition to salary. These options might include cash bonuses, stock options, or even complex stock-based compensation awards that include a range of derivative securities. Such payment methods enable employees to negotiate more lucrative compensation packages while deferring certain taxes. However, section 409A of the tax code restricts deferred income, and companies must take appropriate steps to ensure that when granting deferred compensation, such as stock options, where awards are earned over time, they’re compliant with Section 409A of the Tax Code.
For the past decade, the IRS has leveled increased scrutiny and hefty fines at employers and employees that have failed to properly value their deferred compensation arrangements in accordance with the provisions in 409A. In order to avoid being subject to 409A, employers planning to issue incentives such as stock options and stock appreciation rights (SARs), need to demonstrate that this compensation is issued “at the money.” This means that the strike price, or the price at which employees can buy equity in the company, is equal to the fair market value of the underlying shares at the time they are granted. Incentive compensation structured this way is in compliance with 409A.
Typically, when companies fail to comply with 409A, the breach isn’t intentional. Compliance with 409A is especially tricky for privately held companies and startups that would like to offer stock options to employees. These cases require a 409A valuation. The valuation provides an appraisal of the fair market value of your company’s common stock. While it’s easy to see the daily stock price for public companies, offering private company stock necessitates an independent valuation to determine how much your company’s stock is worth. A 409A valuation determines your strike price, so that this figure is always set at or above market value, satisfying the IRS.
For private companies, a 409A valuation is required by law, and must be completed every 12 months, or possibly more frequently if you’re fundraising. While it’s possible for companies to handle the valuation internally, this is rarely the best path forward. Hiring an independent firm to complete your valuation is the best bet because it’s the only option that offers safe harbor protection. This protection ensures that the burden of proof would be on the IRS, not on you, in the event of an audit.
Non-compliance with 409A can have considerable consequences for your company and your employees. Undervaluing stock options can result in major IRS penalties, as well as lost compensation. Any option holder in violation of 409A will need to pay taxes (including interest) in addition to a 20 percent federal penalty, as well as applicable state and tax underpayment penalties. This is not a recipe for happy employees, nor is it financially viable for employers.
Valuations protect your company and your staff from undo financial consequences. Obtaining regular, defensible valuations is a necessary step for all private companies that wish to incentivize employees through deferred compensation packages.
Navigating Section 409A can prove perilous to companies that overlook this requirement. Thankfully, independent valuation experts that are skilled at these types of appraisals remove those risks, enabling employers to offer robust incentives to their most valued employees with confidence.
In 2013, the global green market was worth $260 billion and encompassed a full 20 percent of all new commercial real estate construction in the United States; experts project that by 2022, the market will have burgeoned to a worth of over $364 billion and that green buildings will become more of a norm than a novelty.
These statistics may be somewhat startling, given the predominant misconception that sustainable construction is expensive and often not worth the front-end investment it requires. In truth, energy efficiency’s value cannot be summed up in the simple math of building construction costs versus utility expenses saved; sustainability is a hallmark of top-tier corporate offices—and today, every influential player wants in.
Green construction has enjoyed widespread adoption from some of the most notable forces in business today. All Apple facilities, for example, run on 100% renewable energy, while Cisco Systems approaches sustainability with the same attention to asset design and cost-effectiveness it would give to any of its products. Modern businesses are not only looking to lessen their emissions outputs and cut down on their utility expenses, but also make a powerful statement about their environmentally-friendly culture and priorities. This widespread interest in sustainability boosts market demand for green buildings and thus provides value to those that are outfitted to be energy-efficient.
Potential tenants have good reason to seek out sustainable buildings. Energy-efficient constructions are well-known for their energy savings; according to one study from the Institute for Market Transformation, if a project decreases energy usage by 10 percent across a space that encompasses 100,000 square feet and pays $2.50 for each, the property’s net operating income can increase to over $25,000.
However, potential gains are not limited to energy savings alone. One well-respected research venture published by Greg Kats in 2003 found that companies could save as much as $55 per square foot in “hidden” costs due to improvements in ventilation, lighting, and environment. Sustainable companies often pay less in unemployment insurance and medical costs because employees are happier and take less sick days when working in healthier environments.
That said, demand and productivity gains are not the only factors at work. Certified green buildings are well-known to outperform their conventional peers; one 2012 McGraw Hill Construction study found that sustainable renovations increased building value by 10.9 percent for new construction and 6.8 percent for existing projects. Accredited sustainable structures have also been found to enjoy more instances of lease renewal, decreased rates of tenant rent concessions, significantly higher levels of tenant satisfaction, and even increased occupancy. This means that sustainable properties often fare better during real estate valuations and offer more potential for profit to their owners than conventional constructions tend to; some studies have indicated that an owner’s return on investment can leap as much as 19 percent on existing projects and by nearly 10 percent for new constructions.
This potential for improved value comes with a caveat: buildings with a few sustainable features do not have the market value that certified green properties do. If investors intend to accrue the most benefit from incorporating greater sustainability into their buildings, they must formally submit their properties for third-party consideration and receive a sustainability rating from an accredited organization. Achieving a rank is an often-daunting process that poses an additional financial cost on top of existing construction expenses.
For some property owners, the time and financial investment might not be worth the potential gain. Certified or not, having green features allows investors to appeal to common demand, boost their property above competitors’ listings, and raise rents to reflect the space’s increased value. However, so-called “brown” buildings with a few “green” characteristics do not have the market value that certified buildings hold; formally-accredited properties have been found to have 4 to 5 percent higher lease rates than their informally-sustainable competitors.
Regardless of whether a building is certified or not, however, there can be no doubt that incorporating energy-efficient systems and structures will improve the value of a property, especially given the pro-sustainability preferences in the commercial market. As such, even small renovations are well-worth a property developer’s consideration when it comes to boosting asset value.
The research is clear. Gender diverse corporations are more profitable than companies comprised predominantly of men. The percentage of women in corporate leadership positions can directly impact a business’ bottom line, making it more valuable to the market. Equality is not just about fairness anymore, it is about yielding better business results.
A recent global study conducted by the Peterson Institute for International Economics, which surveyed 21,980 global, publicly traded firms from 91 different countries, found that if women were to participate more fully in corporate leadership, the economic impact could be profound. Having at least 30 percent of women comprising the C-suite (CEOs, board members, and other C-level executives) adds 6 percent to net profit margins. Marcus Noland, director of studies at Peterson says, “The evidence of women in the C-suite is robust: no matter how we torture the data we get the same result: women in the C-suite are associated with higher profitability.”
And that is only one of the recent studies completed on the topic. Catalyst research shows that companies with a higher percentage of women in executive roles have a 34 percent higher total return to shareholders than those that do not. Another Catalyst study found that companies with the most females outperform those with the least on return on invested capital by 26 percent. MSCI Inc. found that US companies with at least three women on the board had median gains in return on equity 11 percent higher, and earnings per share 45 percent higher, than companies with no women directors. Credit Suisse Research came to a similar conclusion about women board members. There have also been recent studies by McKinsey and Gallup that show startling links between gender diversity in leadership and higher returns on equity, operating profits, revenues, net profits, and stock prices. Several other studies link gender diversity to higher productivity, employee commitment and retention, greater innovation and creativity, and more effective talent recruitment.
And yet, progress on this remains unhurried. In 2017, on average, women accounted for just 17 percent of corporate board members and 12 percent of executive committee members in the top 50 listed G-20 companies.
Intangible assets, including employees and their accompanying talent, now drive the bulk of a company’s valuation. Given the consistency of these results across such a wide swath of current research, gender parity should be top of mind for firms looking to both optimize current performance and position themselves for higher corporate valuations in the future.
Striving for meaningful gender diversity within your company and ensuring that women are represented equally on senior management teams and in the boardroom is no longer simply the “right” thing to do—it is also the smart thing. The presence of women contributes to functional and skill diversity and establishes a non-discriminatory culture where all hard-working employees can thrive. And that is precisely the kind of culture that best attracts, retains, and makes good use of exceptional talent that drives lasting results.
Established companies do not thrive on tangible assets alone. To say that intangible assets play a large role in determining the overall value of a company is a gross understatement. In fact, patents, copyrights, and other intangible assets can have substantial impact on the value of a business. In today’s marketplace, it is not uncommon for real estate holdings and equipment to account for a very small piece of the overall pie.
This is a byproduct of our knowledge-based economy. To thrive in today’s post-manufacturing world, where industries have been transformed and balance sheets turned upside down, smart businesses are routinely evaluating the assets listed on their balance sheet, and unlocking the true value of their businesses by assessing intangibles. Even smarter businesses are taking that concept one step farther and ensuring that they have systems in place to continually uncover hidden innovation and intellectual property as they move forward.
Unfortunately, intangible asset valuation is a tricky area that is difficult to handle in-house. Accounting systems are not designed to provide feedback on intangibles, and given that these valuations involve greater subjectivity, a professional with a consistent and respected methodology is usually necessary. However, an understanding of your company’s intangible assets—whether they be trademarks, employees, brand loyalty, proprietary technology, copyrights, customer relationships, contracts, R&D, corporate culture, trade secrets, or something else—drives your business valuation.
That number is something that all companies should know, whether they are raising money, selling the business, attracting financing, protecting intellectual property from competitors, or simply trying to grow faster. After all, how can a company become the next industry leader without an intimate knowledge of its assets? Google doesn’t have an $800 billion market capitalization because it owns a lot of servers and furniture. Google is a powerhouse because it understands how to leverage intangible assets.
Intangible assets are what gives a company its edge and boosts its earnings. Taking steps early on to capture and increase the value of patents and intangible assets allows business owners to grow their company ahead of an exit or another corporate milestone. Profitability now hinges on a company’s ability to create, transfer, assemble, integrate, protect, and exploit knowledge assets.
Your company likely has numerous entities that contribute to your success. They may be a streamlined business process, a talented senior management team, or a stellar customer retention program. Make sure you understand where your company’s value truly lies.
Innovative and creative undertakings are the forces that drive the U.S. economy. Over the last century, we have experienced unparalleled advancements that defend our competitive edge and improve our quality of life. As a leader in innovation, our nation’s companies rely on intellectual property as one means for promoting sustainable growth.
Copyrights, trademarks, and patents allow companies to establish an authentic identity through ownership of their brand, inventions, and ideas. This legal framework benefits businesses, their employees—and, as a result, the economy.
In 2016, the U.S. Department of Commerce published Intellectual Property of the U.S. Economy: 2016 Update, a report that validates the powerful link between IP and economic evolution. Although every industry utilizes intellectual property rights, the U.S. Department of Commerce has identified 81 industries that use copyrights, trademarks, and patents more extensively than others. These “IP-intensive industries” are the ones that have the most profound impact on the nation’s economy. They directly and indirectly support up to 45 million jobs, which accounts for 30 percent of the total jobs in our country. These industries also contribute over $6 trillion to the United States’ gross domestic product (GDP), or 38.2 percent of its total amount.
The creation of high-paying jobs
The creation of jobs is integral to powering a better economy. IP-intensive industries—tech, entertainment, pharma, and media—continue to support an increasing number of jobs, and are also responsible for creating rich, culturally diverse companies. A percentage of these jobs are made up of self-employed individuals, who account for 8.5 percent of the jobs created in these industries.
While the creation of jobs is important, it is also important to note that these positions pay well—roughly 46 percent higher than in other industries. This means that, on average, an employee from an IP-intensive industry would make hundreds of dollars more per week than an employee working in a non-IP industry. There are 18 states across the country—where employee salaries in these industries are almost 20 percent above the national average.
Economic growth and competition
Intellectual property incentivizes owners to think creatively and develop unique innovations, knowing they are protected from copyright infringement. This fosters a more advanced economy, with many ideas and products proactively working to enhance quality of life for U.S. residents. IP also influences more investment opportunities and supports both entrepreneurial liquidity and licensed tech through various business valuations. These factors all affect how intellectual property is valued and how IP benefits the economy.
IP-intensive industries account for over 38 percent of our GDP, but they also account for 52 percent of merchandise exports from the United States—an unprecedented gain of $842 billion. Manufacturing, oil and gas, and pharmaceutical industries are just a few of the sectors that benefit the most from exports to other countries.
Although the economic advantages of IP are clear, there is still a lot that can be learned about how intellectual property can continue to energize the U.S. economy.
The production of our nation’s electricity has seen a significant shift from non-renewable to renewable energy sources in the last two years—solar, wind, hydropower, geothermal. In 2016, 15 percent of our electricity was derived from these environmentally friendly alternatives, which climbed to nearly 20 percent last year.
As our nation leans more heavily on renewable energy, we become less dependent on fossil fuels; minimizing our usage of fossil fuels begets environmental and financial benefits. Renewable energy reduces carbon emissions, protecting the environment—and us. As these energy costs continue to fall, renewable energy is also becoming a more cost-effective alternative. According to the director-general of the International Renewable Energy Agency (IRENA), these declining costs are indicative of an industry that is truly disrupting the global energy system.
Needless to say, renewable energy is poised for more unprecedented growth in 2018 (and for many years to come), with wind energy a major contributor to that expansion. Last year, wind energy generated 6 percent of the nation’s electricity and accounted for 37 percent of electricity produced by renewable energy. In the first quarter of 2017, the American Wind Energy Association (AWEA) reported that a new wind turbine was installed in the United States every two and a half hours.
Because of this rapid expansion, the U.S. is reputed for being a world leader in wind energy, next to China and the European Union. As energy developers look to acquire more land for wind farming, property owners stand to make a profit—literally. The wind energy sector compensates farmers, ranchers, and landowners upwards of $222 million every year to lease property for wind turbines—a number that is expected to rise exponentially in the foreseeable future.
If an energy developer finds a suitable location for their wind farm, the property owner will receive a wind turbine lease that confirms the conversion of their land, and proper compensation. The landowner will receive a monthly rental payment, which varies according to the number of wind turbines on the property, their location, and the rate of local competition. On average, a smaller, single wind turbine lease can be valued at around $8,000 per year; a larger turbine, between $50,000 to $80,000.
Power companies also benefit from the federal tax credit on wind production, which was extended by five years at the end of 2015. And 80 percent of those companies’ costs are in the machinery. An equipment appraisal shows that a commercial turbine costs anywhere from $3 million to $4 million installed.
It is important to obtain an equipment appraisal and business valuation of your wind power facility for a variety of reasons, including tax and insurance reporting purposes. Due to the complexity of these power valuations, a firm must have experience and knowledge regarding the renewable energy industry to conduct a precise appraisal.
At Appraisal Economics, we use proven methodologies that provide the most accurate valuation reports.A combination of cost, income, and market approaches are necessary to conduct a wind turbine valuation, which will help establish the worth of your facility and equipment.
When preparing for an acquisition or merger, there are numerous issues that require forethought and careful planning from a company before a transaction can be finalized. Of these issues, golden parachutes should be a top priority.
The “Golden Parachute Rules,” which were first established by Congress in 1984 and later finalized in 2003, can result in repercussions for both companies and disqualified individuals. Companies can lose their tax deduction, while disqualified individuals—shareholders who own more than 1 percent of the company’s stock, officers of the corporation, or highly compensated individuals—risk owing excise taxes.
These golden parachute payments are a form of compensation paid out to disqualified individuals following a change in control. Congress supplemented Section 280G as part of the Internal Revenue Code to dissuade companies from issuing golden parachutes for excessive gain either for themselves or management. Many believe that companies see parachute payments as an incentive to solicit an acquisition or merger for the benefit of management, rather than what’s in the best interest of the shareholders.
Parachute payments can include anything from a bonus to restricted stock to severance payments. These payments become problematic when they exceed a certain threshold, which is calculated by comparing the parachute payment with the base amount of the disqualified individual. If payment is less than three times the base amount—or the average annual compensation of the individual over the past five years—it’s considered a safe harbor amount and not subject to penalty. If payment exceeds the base amount, it becomes an excess parachute payment and violates Section 280G.
Section 280G prohibits deductions for excess parachute payments, and Section 4999 begets a 20 percent excise tax from the individual, which the company cannot consider a deductible. Oftentimes, provisions may be built into contracts that limit the number of parachute payments allowed by companies so excess payments won’t frequently occur.
Parachute payments can be reduced when compelling evidence is presented that proves the amount is reasonable compensation for services provided by a disqualified individual after the change in control takes place. This is advantageous because the amount is decreased prior to the payment/base amount calculation transpires. Excess parachute payments can also be reduced when strong evidence proves the amount is reasonable compensation for services provided by a disqualified individual before the change in control happens. A valuation company will get involved at this stage to analyze whether the amount determined can be considered reasonable compensation.
While rare, there are certain corporations that are exempt from Section 280G. These include: S-corps, partnerships, LLCs, and tax-exempt organizations. “Small business corporations” are also exempt from the parachute payment rules. To qualify, these organizations cannot have more than 100 shareholders or more than one class of stock. These requirements typically apply to s-corps, but making an S election isn’t necessary to be distinguished as a small business corporation in regards to the golden parachute rules.
Yes, business valuations cost money, but savvy business owners don’t view the expense as a financial burden. They understand that it’s actually a smart investment that can more than pay for itself over time. If performed correctly, a business valuation isn’t merely worth the money, it’s a roadmap to increased profitability.
Every company has a need for consistent business valuations. In their most mundane applications, they’re necessary for public companies to comply with accounting standards, and for private companies to deal with gift or estate taxes, stock compensation, and capital structuring.
Whether a business has interested prospects seeking to explore an acquisition or not, every executive should understand their company’s worth at all times. And, let’s face it, only a certified expert can properly value depreciated assets, perform reliable patent valuations, or assess other intangible assets, which often play an enormous role in in determining a company’s overall worth. Knowing your company’s value is useful, and most certainly worth the money, especially when business owners perform periodic valuations and track performance over time. But appraisals become indispensable and priceless when leveraged strategically to boost profitability and improve operations.
A quality business appraisal analyzes a company’s finances, assets, operations, and practices, each aspect of which are not only detailed, but also benchmarked against similar companies that are often of comparable size, industry, and geography. In this context, a valuation can highlight strengths and bring to light weaknesses that are impacting your bottom line.
From a big-picture standpoint, companies can grasp which assets, practices, and disciplines are driving the value of their business. They’ll also have the ability to assess what risks are negatively impacting them, as well as anticipate how evolving market trends could factor into the company’s health down the line. Could anticipated drops in real estate values cause future challenges? Likewise, could changing industry conditions open up new opportunities to expand services or enter new geographies?
Business valuations can be used as strategic planning tools, and can even enable business owners to analyze how certain strategic business decisions would impact the company before the measures are actually pursued, saving time, helping to avoid costly mistakes, and redirecting resources to the best long-term value drivers.
Just as business valuations can help owners frame their best-case, big-picture strategic direction, a valuation can also point to smaller performance indicators that add up to big savings and profitability enhancements. Industry benchmarks can help a business assess areas where it’s outperforming the competition, and areas where it isn’t. These indicators could include metrics related to accounts receivable collections, headcount, process efficiencies, technology adoption, sales, customer data, and more. These metrics remove the mystery from your corporate performance and provide a clear roadmap for how, specifically, to better compete in the marketplace.
So while it’s tempting to view a business valuation as a costly “nice-to-have” that can be indefinitely postponed, it’s actually a tremendous investment to make in your business. The insights and information will literally shape your company’s future trajectory, ensuring your daily operations and strategic initiatives are calibrated for maximum growth and impact.
As we embrace increasing digitization, it’s important to consider how technology is reshaping our world. Increased online activity is great for companies hoping to quickly and cost-effectively gain notoriety and influence; after all, it’s much easier for brands to reach larger national and international audiences via the web and social media platforms. But the additional exposure creates risks, making brands more susceptible to trademark disputes.
Trademarks are used to differentiate a company’s products and services, and can serve to protect a logo, name, phrase, design, or any combination of these elements. They are, essentially, your brand. Your reputation. And while it’s understandably an imperative for any marketing department to promote the brand as widely and loudly as possible, ideas take on a life of their own in the virtual world. Concepts are shared and, much to our dismay, embraced by competitors. This occurs at a dizzyingly fast pace and, without established trademarks, can leave the individual or company who pioneered the concept at a huge disadvantage in the marketplace. There’s nothing worse than coming up with a perfect way to brand an offering, only to have that competitive edge snapped up and exploited by someone else with more marketing resources and budget at their disposal. This can obviously hobble a company’s ability to sell its products, grow, and thrive.
The truth is, however, that even when a company does take the appropriate steps to protect itself with trademarks, it’s often not enough. Intellectual property disputes have become a disturbingly common occurrence, and seem to be an unavoidable byproduct of digitization.This isn’t to say that businesses shouldn’t bother to trademark. Quite the opposite is true. Businesses should trademark, and then seek valuations of their trademarks. This is because trademarks are more important than most people think. They’re the brand and the reputation, yes, but they’re also a company’s industry standing and its ability to effectively sell its services.
Trademarks serve as valuable intangible assets, making them an important component to a company’s worth. Economists largely agree that intangible assets like trademarks, brands, intellectual property, and licenses now account for the lion’s share of a company’s economic value, and they represent key performance drivers in our evolving knowledge-based economy. This means that in order to understand the current value and success of a company, it’s critical to not only have trademarks and patents in place, but to perform a valuation of the assets. This helps a company assess its competitive advantage, and also helps to protect it, because understanding the value of a trademark makes it possible to quantify the stakes in any legal disputes that may arise.
Trademark valuations help protect brands by providing evidentiary support of value. The exercise also helps management teams understand valuable business information that can help set future strategy, including: the historical records and financial projections associated with the trademarks, name recognition, advertising expenses and results, competitive landscape, and more. Trademark and intellectual property valuations help assess a business’s current market value, and provide key insights on how to increase the value over time. Valuations are also a common requirement for mergers and acquisitions, bankruptcy proceedings, trademark sale and/or purchase, tax reporting, litigation support, and determining royalty rates for licensing purposes.
Trademarks are how you communicate with the world, how clients find you, and how others assess you. Ensuring that you’ve done all you can to secure your trademarks is a necessary step to take for your business. And because trademarks can appreciate in value over time, consider seeking periodic valuations as a way to measure long-term growth.