Intellectual capital

Small business intellectual capital valuation

Key points in this article

  • Intellectual capital has three categories: human, relational and structural
  • You can improve the worth of your intellectual capital by encouraging a healthy work culture
  • Safeguards can be implemented to protect your assets

What is intellectual capital?

Think of intellectual capital as the ideas and knowledge of both you and your employees. Your designs and creations, the experience you and your staff have, your working relationships, and the service you provide – each is important in its own right, and as a whole they’re considered your intellectual capital.

How to recognise intellectual capital

Start by breaking your intellectual capital down into three categories.

Human capital

This is the living and thinking part of your business – the skill sets, experience, competency, attitude, and aptitude of you and your staff.

Relational capital

Any relationship that exists between you or your staff and someone outside of your business, including customers, creditors, advisers and suppliers.

Structural capital

This covers a wide range of vital factors including operational processes, database records, working culture, ethical values, and Intellectual Property (IP) that’s legally protected.

IP comprises of a diverse range of commercial assets that have been developed over the lifetime of a business. It could include patents, copyright material, new products, logos, and branding.

Get together with your business’s key leaders to discuss and take note of your intellectual capital

Typical examples of intellectual capital

You and your staff will hold most of the intellectual capital in your business. Examples might be:

  • documented processes – information on the best practise for completing tasks, or how certain machinery works optimally
  • any research about trends, customer behaviour or potential customer opportunities
  • the details of how your products or services work
  • your individual industry experience.

Intellectual property such as patents and brands can be easier to value where you can more directly relate its financial worth to increases in sales. Consider engaging a lawyer to gain a clear indication of the value of your IP.

Improve the worth of your intellectual capital

Improve the worth of your intellectual capital by encouraging a healthy work culture and instilling some pride and belief in your workforce. Ensure you and your staff:

  • improve relationships with suppliers and customers
  • come up with ideas to enhance work processes
  • document and standardise your production processes
  • hone your products or services
  • attend related training courses and industry events.

Always look for ways to improve your intellectual capital as your business grows

Protect your intellectual assets

While you can’t always protect all of your intangible assets, here are some safeguards to consider:

  • make certain your employees’ contracts contain restraint of trade clauses to protect you if an employee sets up in direct competition
  • be sure that staff are aware of ownership rights of any IP
  • reduce staff turnover by creating a healthy working environment
  • protect your IP with a trademark or patent – find out more by visiting IP Australia.

Your business’s intangible assets are just as important as its tangible ones

Communicate the value of your assets

Make sure potential investors, suppliers, lenders, and customers know the value of your intellectual assets. A business with a wealth of experience, creativity, and dedication is a pleasure to deal with. Make sure your customers, lenders, suppliers and potential investors know about it.

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