Boosting built-in value

Have you ever thought, as your business evolves, about how establishing a solid legal foundation enhances its worth? Improving your practices and systems can help you to mitigate risk, and to identify and protect assets adding to its worth. In this quick 2-minute read, we outline some straightforward ways to boost your company’s built-in value for your operations. When we say ‘built-in value’ here, we are talking about things like:

• Enhancing market value If you are planning on selling the enterprise further down the line, a solid legal foundation helps establish a good reputation and can lead to a higher valuation if a potential buyer perceives a reduced legal risk
• Boosting investor confidence A robust legal framework demonstrates to potential investors that the business is well-managed and has minimal legal risks, making them more likely to invest
• Increasing the value of assets Safeguarding your know-how and other intellectual property assets, and having your relationships clarified in well-documented contracts can enhance how your organisation is valued

Where is the worth in your business?

First of all, you may like to have a think about where, for your company, the value lies. For example, it may be any, or a combination of, the following:

• Intellectual property (IP)
• Brand and reputation
• Skilled workforce and expertise
• Customer relationships and goodwill
• Operational processes and supply chains

Whatever it is that is important to your business, for each type of asset you could consider whether those assets are routinely and clearly identified, documented, protected and up to date in your operations. If not, you have an opportunity to bridge that gap, and achieve improved built-in value, with the right professional support, of course. Here are a few typical ways a company can do just that:

Creating IP assets

IP is a valuable business asset which helps to keep your enterprise ahead of the game. Original work or innovation gives you a creative or competitive advantage over others. IP rights allow you to control and capitalise on the commercial benefit of this work, maximising profits and enhancing the overall value of your business, too. IP includes patents, trade marks, confidential know-how, trade secrets, copyright, design right, rights in software and domain names. You will probably already know that IP such as patents, trade marks and designs can be created by registering them in a formal system. Registered IP is particularly valuable as it effectively gives you a legal monopoly. But how are you protecting your other valuable IP – for example confidential information, trade secrets, know how, databases? Maybe the utility of this know-how is dependent on one or two of your key employees? If so, can you find a way to document it, and so create a tangible asset? It is also a good idea to think about who has access to this information – and access control can be a practical way to protect sensitive information. Perhaps you are launching a new product, service or solution – have you done everything that is available to you to build a protective cushion of IP around that offering?

By the way, confidential information is also a valuable type of IP right. These rights only exist for as long as it remains secret – which is why you need to be really careful about where it is kept, who sees it, and who is allowed to use it. Do you have a standard NDA (non-disclosure agreement), and are you routinely using it?

Documenting relationships

Having comprehensive contracts in place with customers, suppliers and everyone else in your organisation’s ecosphere ensures a solid foundation for professional relationships. Contracts will clearly outline commercial terms, rights, responsibilities, and other terms to minimise and manage the risk of legal disputes. Ideally, you will have standard terms and conditions in place already for your more typical transactions. For non-standard arrangements, a lawyer will help you to draw up something suitable. Contracts help to manage expectations and minimise the risk of future disagreements. But more than that, contracts have value as documented commitments. They send a clear signal out to third parties, for example potential investors, that the business is dependable, well-managed and has minimal legal risks.

Getting on top of Governance

Now, it may not come top of the priority list for many SMEs, but implementing robust internal controls and governance procedures will keep you compliant with regulations and ensure ethical business operations. Staying up to date with data privacy requirements, for example, will ensure you avoid penalties, do not break third party contracts, and maintain a good reputation. So how does this add built-in value? Well, not only are you minimising risk to your SME, but also, strong governance practices send a clear message to the outside world that your business is a professionally-run and ethical enterprise: there is real reputational value there.

Enhancing overall value

Measures such as those we have mentioned here really can add long-term worth to your business, ultimately contributing to a more resilient and valuable enterprise. Bear in mind that, as your SME grows, you’ll need to periodically review your legal protections, documents and compliance measures to adapt to changing circumstances and regulations. A lawyer who understands your organisation can help you to ensure that your legal strategy aligns with your business goals and requirements.

Because the team at My Inhouse Lawyer have all spent years working in business with other business people (instead of only in law firms with lawyers), we know well how to use the law to add value to a business and protect it. If you’d like to talk about this topic some more, please feel free to get in touch with us