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Originally published in the Financial Post.
Within every industry, there are brands that are worth their weight in gold. For many organizations, their brand-related assets such as logos, patents and copyrights have a direct impact on sales and revenues. In some cases, brand value can be measured in many thousands to millions of dollars but it’s not an asset that shows up on financial statements. In fact, it’s something that many companies tend to overlook.
For business owners, however, it’s important to understand the value in the brand you have built, says Chris Perret, partner, valuation and appraisal services for MNP in Calgary. “Most business owners are understandably focused on operating their business. But, they need to dial that back a bit to understand what all the drivers are and if brand value is a part of that. This will help them direct the appropriate amount of investment into that asset.”
While it’s advisable to be proactive in including a brand valuation in your business planning, in most cases, valuation requests are triggered by an event, such as a company sale, a brand infringement incident or an intellectual property transfer.
Bruno Barrette, intellectual property specialist with Barrette Legal Inc. in Montreal, says he often works with accounting firms on valuations. “It could be required within the context of an infringement case and you need to evaluate the brand to calculate damages or, it may be needed when you are selling your company, negotiating a merger or acquisition, entering a licensing agreement or selling a specific technology or patent.”
That’s where the numbers have to come into play, says Catherine Tremblay, partner, valuation and litigation support for MNP in Montreal. “Since brand value is not tracked in accounting records, it can easily go unnoticed.”
An extreme example of just how significant that can be is Coca-Cola. Interbrand estimates its current brand value to be $77-billion. “But even that number doesn’t show up on their financial statements,” Ms. Tremblay says. “That’s the No. 1 problem with brand value. It’s not on your balance sheet but sometimes it’s your most valuable asset.”
Brand value encompasses a diverse range of elements, including trademarks, logos, names, packaging, colours, customer relationships and all the elements consumers associate with a company’s image. “It can even be part of a recipe,” Ms. Tremblay says. “However, it’s something that is rarely tracked on a consistent basis.”
The valuation process can be likened to a real estate appraisal, she notes. There are three basic approaches: cost, income and market. The preference depends on the type of business and brand asset in question.
The cost approach is more historical, in which all costs expended since the inception of a brand are assessed. “That might make it difficult to get a representative value if you have an established brand that has been around for many years. It’s not really the best approach in those circumstances,” Ms. Tremblay says.
The income approach is a forward-looking exercise in which the valuation is based on projections of future cash flows that can be derived from the asset, she says. “Obviously there’s a bit of speculation involved there but it does work better for well-established brands with a history.”
The market approach looks to the present by finding comparable brands or other transactions involving similar brands. “If your brand is unique, however, that might be more of a challenge. It may require researching databases for relevant market transactions,” Ms. Tremblay notes.
Valuations should be more than just a response to outside forces. Getting in on the ground floor with a brand valuation makes good business sense. Ms. Tremblay says, “Once you have it, you can track it over time and grow that value. That’s the whole point.”
Categories:Valuation, Forensics and Litigation Support
Client Groups:Food ＆ Beverage Processing
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