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Preparing For The Endgame

In a recent Inc. Magazine article, titled Prepare Your Exit Strategy Now–Just In Case, the authors give four things you should do now, even if you are not yet ready to sell your company. While they say these steps lead to increased value for your company, they forgot to mention one of the most important tasks a business owner has: Protecting your property, and in particular, your intellectual property.

Put yourself in the shoes of potential buyers of your company. They value the purchase of your company in terms of how risky it will be to continue the business after you’re gone. Clearly a buyer will pay much less for a list of current and potential customers than it would for a company that has a customer list and readily identifiable property that forms the basis of your competitive edge. Those are the essential elements of the first two items on the Inc. magazine article: Keeping your competitive edge, and Knowing your potential buyers.

But how much more valuable is your company to a buyer if the property that forms the basis of your competitive edge cannot be used by any competitor? Said another way, buyers will pay a premium if you can tell them that the government helps you protect a legal monopoly on your competitive advantage.

To use an analogy, which building in downtown Manhattan would an investor rather buy: One for which the seller has current renters but cannot show clear title, or one for which the seller can show not only fully rented building but also rock solid title? Your company probably doesn’t own property in downtown Manhattan, but you surely do have intellectual property locked up in those things that form your competitive edge. And much of your intellectual property can be protected with a document from the government that is every bit as valuable to a buyer as title to land is.

When I sold my software company back in the 1990s, it was a heady time, with giant multiples being paid by buyers. But no one had told me that in order to secure those giant multiples I should have some government-sponsored protection for my intellectual property. I did alright when I sold, but I would have received a much bigger paycheck if I had planned ahead and gotten a patent or two, registered our trademarks, and had in place the proper procedures for protecting trade secrets.

The authors of the Inc. article reference above are right, now is the time to begin your endgame strategy. Make one of the steps you take be to consult with a business advisor who can help you identify your hidden intellectual property. Then go to a lawyer who can help you obtain government-sanction protection for that intellectual property. Or, if you would rather deal with one firm that can help you with both of those tasks, contact Argent Place Advisors to schedule an exploratory conversation.

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