Setting up an innovation start-up

When setting up any new business, you should consider what your assets may be, how you can use them and ways to protect them.

Your core assets can be split into:

• financial assets
• tangible assets
• intangible assets

Tangible assets could include premises and equipment related to production or delivery. You can have these assets valued to provide an accurate description of what they are worth. You can buy and sell, borrow against, and use these tangible assets to back other financial instruments.

More important to an innovation start-up, however, are intangible assets. These can include less measurable things, such as:

• knowledge or 'know-how'
• unique business methodologies
• customer lists
• goodwill
• company's reputation
• service or supply contracts
• trade secrets
• intellectual property (IP), such as trade marks, designs, copyright or patents

By nature, intangible assets are nonphysical and nonmonetary. They can be difficult to quantify or covert to cash, but you may be able to use some of the intangible assets to raise funds. It is, therefore, worth protecting them.

Advantages of intangible assets

Intangible assets are an important source of strong competitive advantage for business and central to creating customer value, as well as shareholder/stakeholder value. For example:

• patents help businesses to protect their inventions from unauthorised exploitation
• business' reputation, often measured by goodwill and brand recognition, is crucial for promoting sales, building trust, and increasing customer loyalty
• business' knowledge, skills and processes are critical for creating long-term value

Often, intangible assets are more valuable to a business than their tangible assets. Their worth may vary from business to business.

Raising finance against intangible assets

The easiest way for companies to raise funds using their intangible assets is through:

• sales - which provides the business with immediate payment
• licensing - which creates future revenue

You can also use some intangible assets - such as IP – as collateral in a traditional asset-based loan. This happens when a lender extends credit to a company based on an assessment of disposal value of their IP in the event the company defaults on their loan repayments.

Read more about selling your intellectual property and find out how to make money from trade marks.

Because there is value in IP, protecting it could be vital to your future success. It is important to understand the law, your rights and the rights of other IP holders.

See how to carry out business asset valuation and read about the importance of assets in business.