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UNDERSTATED BALANCE SHEETS

Organically grown IP usually is not reflected on a company balance sheet. The reason is simple: these costs to develop and maintain the IP (software, patent, etc.) are expensed. The only way IP is recorded on the balance sheet is after it is purchased, usually as part of an acquisition of an entire business.

The latest expert analysis suggests that nearly 60% of a public company's balance sheet should reflect IP. Yet the amount is often significantly less.

This lack of value in the assets section of the balance sheet is also acute for private companies. Thus, how does the potential buyer know what assets they are considering purchasing? One way is via a detailed valuation by an independent firm. Almost no investment banker, unless he is attached to a valuation firm, such as Mentor Securities, will know anything about IP value.

It behooves the seller to identify and certify their owned IP. The book created by the IBanker must clearly describe the benefits of the IP, and show specifically how vital are these assets.

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