Right now, I am very hard-pressed to think of any…business transaction negotiation that is not embedded with intangible assets, i.e., variations of intellectual, structural, and relationship capital, etc.
Rather unfortunately, some negotiating strategies remain…framed predominantly, if not solely, on the content of a (conventional) balance sheets, financial statements, and projections, the latter almost wholly reliant on acknowledging the contributory roles, value, revenues, and competitive advantages produced by intangible assets.
Transaction management – negotiation teams…which are even variously dismissive of – omit the intangible assets in play, will likely lead, unnecessarily, to negotiation impasses and/or ‘walk-aways’. Or, if the other party has achieved operational familiarity with their intangible assets, will most assuredly benefit.
It is true, intangible assets are seldom, if ever reported…(accounted for) in conventional financial statements, balance sheets, or valuations, unless specifically requested. Such omissions (under or non-reporting of intangible assets) appear to be tolerated, at least in large part because…
1. accountants, auditors, valuators, tax, and legal sectors are obliged to interpret – report intangible assets in strict accordance with existing standards and/or statutes set forth by relevant state-federal regulatory-oversight bodies, academic disciplines, and professional association certification.
2. there is an absence of operational familiarity with the various categories – types of intangible assets a business may acquire, develop, exploit, and monetize.
Operationally, these obligations, given their origins in statute or standard…unnecessarily translate as predispositions to conceive- apply business intangible assets in relatively narrow contexts, and perhaps worse, are likely to be characterized as mere conglomerations of undifferentiated goodwill. Please note, for the record, ‘goodwill’ is but one (single) type or category of.
Of course, these narrow perspectives of intangible assets seldom…if ever, include their contributory role and value, and thus, stand apart from the broader – more expansive context how to exploit intangibles as espoused throughout this blog, i.e.,
- the globally universal economic fact – business reality that 80+% of most company’s value, sources of revenue, competitiveness, and sustainability, etc., lie in – emerge directly from intangible (non-physical) assets.
When – if this economic fact goes un-noticed…assets will be under-estimated, or they may be wholly overlooked or omitted from a business (buy – sell – transfer) negotiation, the assets will still remain in play, i.e., in the form of value, drivers of revenue, competitive advantages, sector standing, and future performance, but will not likely…
- benefit the buyer, and therefore they will be left on the proverbial negotiating table causing the buyer to smile, providing of course, they are operationally familiar with the intangibles assets they are buying, at a lower price.
Achieving operational familiarity with a business’s intangible assets in advance…warrants attention here and now because anyone with responsibility for negotiating a business transaction, but commences same, absent familiarity with the ‘contributory roles and values’ of the intangible asset in play…
- will surely find their company, or whomever they represent, negotiating with an incomplete portrait of the other party’s intangible assets, i.e., the circumstances when, how, when those assets will be (are) in play, and
- can influence (negotiation, transaction) outcomes, i.e., sustainability revenues and competitive advantages.
Oversights (neglect, dismissiveness) on these levels…can unnecessarily serve as risky entrees upon which (negotiation) confusion, distortions, unsubstantiated generalities, impasses, and walk-aways can certainly occur with substantial adverse effects to reputation and brand.
So, in my judgment, business leadership and management teams that have achieved operational familiarity…with intangible asset in advance of any transaction overture, i.e., they recognize the presence, contributory role, value, revenues, and competitive advantages produced by effectively developed and integrated intangible assets will, very likely, commence with a strategic advantage. This is particularly apropos as growing percentages of industry, trade, and commerce, globally, originate from intangible asset intensive and dependent businesses.
With respectful confidence…the clarity, the capability to differentiate, measure – monitor asset performance, and assess value of intangible assets as advocated here and recognized as (transaction) negotiation requisites, will surely lead to more lucrative, competitive, and sustainable (project, transaction) outcomes, whenever, however, or wherever intangible assets are in play.
Prudent objectives for business leadership and transaction negotiation management teams are to…
- cquire sufficient operational familiarity with key intangible assets of not just their company, but equally important, the business in which interest is being exhibited.
• of course, learning how to do this objectively and distinguish the relevant from the irrelevant are essential in terms of efficiency, effectiveness, and framing strategy-tactics and values.
Respectfully, it’s worth noting again, if – when intangible assets are…
- omitted, dismissed, or otherwise perceived as being irrelevant to a (business transaction) negotiation,
- in which both intangible and tangible-assets will likely be bought, sold, traded, etc.,
- but subordinates the intangibles to convention and/or past practice, it’s likely a transaction outcome will be…
- measurably less lucrative, competitive, and sustainable and,
carry higher risks, as it otherwise should.
Correctly identifying the intangible asset in play…whether it is for strategic-tactical planning, decision making, and/or negotiating a transaction, are not responsibilities relevant only to Fortune-ranked firms.
Instead, intangible assets play crucial roles in small and medium-sized companies, businesses, and research-based start-ups, as well.
Michael D. Moberly St. Louis May 2, 2019 [email protected] the ‘Business Intangible Asset Blog’ since May 2006, 650+ published posts, read in 137 countries, ‘where one’s attention span, businesses intangible assets, and solutions converge’! (This post was initially published here February 14, 2017, the post underwent significant revisions at my hand and is now re-published on March 19, 2019.)
Readers are invited to explore more blog posts, position papers, video, and books at https://kpstrat.com/blog
Reader comments, as always are invited and respectfully welcome!