Businesses are born in different ways, but there’s usually an idea at the centre. It may be something as straightforward as ‘I can do this better, cheaper, faster, differently myself’. Some of the most adventurous ones start from ‘there must be a way to solve this problem’ or ‘why is no-one offering this?’
Whatever drives your business, it hopefully isn’t just price (because price advantage is seldom sustainable on its own). And if you are doing anything that isn’t reliant solely on price, then by definition, you are dealing in some sort of intellectual property (usually shortened to ‘IP’).
This might come as a surprise. After all, when IP gets mentioned, many people’s minds turn to patents and to inventors like Thomas Edison or companies like Dyson. If you have solved a problem in a novel way, then patenting might prove to be very important. However, the most important thing to understand is that the topic of IP is much, much broader.
IP rights can also cover brands, designs and any kind of creative content (under copyright). These laws give your business valuable protection, provided you recognise that other people have rights too.
Trade marks and designs are far less expensive rights to establish than patents; for example, did you know that the official fee to register a design in the UK for its first five years is just £60?
More fundamentally, a whole swathe of other “assets” that aren’t strictly IP also get created when companies do something distinctive – like trade secrets, to take just one example.
The great thing about assets of this kind is that they are a major contributor to ultimate business value. This is because they are connected to competitive advantage; they create barriers to entry, and give companies the freedom to do what they want.
Accounting rules now recognise that expenditure on developing IP and intangible assets is an investment in the future, and can be treated as one. Subject to certain tests, you can put internal as well as external development costs on your balance sheet (if your accountant recommends it).
Regardless of whether you think of your business as being ‘inventive’, you need to give serious consideration to your IP and intangibles. It is highly likely these assets will be a key part of what you earn, what you spend, and what your enterprise is ultimately worth.
There are three broader things that any business can get right from the outset:
- Keep a secret – think carefully about who needs to know what, both inside and outside your organisation, and protect yourself with confidentiality agreements when necessary
- Record everything – so that you can prove that you’ve created ideas yourself, not copied them
- Choose your business name carefully – checking web domain availability, Companies House records and (importantly) names that are already trademarked by searching at www.ipo.gov.uk
© ICAEW 2015. ICAEW will not be liable for any reliance you place on the information in this material. You should seek independent advice.