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RR93 - SME Intangible Assets
Chris Martin and Julie Hartley, 2006
Executive summary
The issue
This report investigates the nature of SME intangible assets and the ways in which they are developed, protected and transferred, and, finally, identifies valuation methodologies.
Intangible assets are knowledge-based assets that are sources of future economic benefits, contribute to individual SMEs' uniqueness and provide sources of competitive advantage. SMEs are heterogeneous and issues involving intangible assets depend on the nature of an SME's activities, and its size and stage of development. Some SMEs are built entirely around their intangible assets, whereas in others intangible assets primarily complement physical and financial assets. The issues involved in developing and exploiting intangible assets differ from those involved in managing physical and financial assets. The lack of concrete form and the general absence of functioning markets for intangible assets make their valuation problematic in comparison with that of physical assets that are regularly bought and sold in transparent markets.
Methodology
A qualitative, case-study-based research approach was adopted, involving a literature survey, collecting data, undertaking interviews with professionals, developing analytical frameworks, analysing the data collected, drawing conclusions and, finally, identifying the implications for SMEs' accountants and business advisers.
Twenty SMEs of varying size and from different sectors were initially recruited, interviews undertaken and intangible assets identified and analysed using strategy mapping approaches. A further 29 SMEs were then brought into the research to develop and populate the framework for categorising the SMEs by an underlying business model. The 49 SMEs used in this research are listed in Appendix 1 (see pages 66 and 67).
Discussions were held with ten professionals to obtain their views and perspectives on SME intangible assets. The professionals were from intellectual property valuation specialists, accountants, company brokers and transfer agents, and a bank and venture capital company.
Data were first collected at the SME level in the form of case studies that outlined entrepreneurial history, identified the main customer perspectives and described how intangible assets formed part of customer relationships, internal functions and learning and growth perspectives. The way in which intangible assets indirectly influenced financial performance was identified. The individual SME intangible assets identified in this research, over 350 in total, were put on a database so that they could be readily accessed and reviewed both by type of intangible asset and by SME category.
The report
The report presents an in-depth discussion of the nature of SME intangible assets, development processes and stages, protection methods, transferability, valuing specific intangible assets, as well as a summary of the findings and conclusions and their implications for SMEs' accountants and business advisers
The full report can be downloaded, in PDF, from the link on the left.