Where can I find the financial information I will need for Sollomon?
Once you've completed your Goldseam asset profile you can make a start on your Sollomon IP valuation.
The financial information you will need includes:
- Historic income, gross profit and EBITDA for your business as a whole;
- Expenditure incurred for the development of your IP, whether expensed or capitalised, spent externally or in-house, with any related R&D tax credit claims;
- 3-5 years-worth of financial projections.
Most of this should be found in your business plan. But, failing that, your accounts should be your next port of call:
Historic income
- Historic income and gross profit can be found on your income statement, also known as a profit and loss (P&L) statement.
- EBITDA is not summarised in your financial statements but can be calculated using data included in the same income/profit and loss statement using the following formula:
Net profit + interest + taxes + depreciation + amortisation = EBITDA
Investment
- Capitalised development costs are likely to be listed on your balance sheet. Expensed development costs will be found on your income/profit and loss statement.
- Claims for R&D tax credits are made based on development expenditure for a given year. It is the amount that has been claimed for before any enhancements are made.
Forecasts
Forecasts are usually found in your business plan and we only require some high-level information from those, including turnover, operating costs and R&D costs, relating just to the IP and intangible assets that have been described in the associated Goldseam profile.
If, however, you don't have any forecasts already in place, your accountant or a consultancy firm might be able to help. If that isn't possible for whatever reason, or you would like to compile your own forecasts, then there are two methods to make use of; Quantitative and qualitative forecasting.
Quantitative forecasting
These methods are based on a review of historic financial activity to establish growth rates, averages and other trends that can be applied to the most recent turnover and expenditures to determine the projections for the coming year and beyond. These methods are relatively easy and quick to do, and will only take your business activity into consideration.
Qualitative forecasting
Qualitative forecasting focuses on more subjective inputs like market research, surveys, management experience and opinion, and the Delphi method. These methods consider how your market has been performing and the progress your competitors have made, the influence and performance of recent developments, and how experts (whether these experts are experienced members of your own team or independent consultants) feel the market and your business is likely to perform based on their own experiences. However, it may be the most time-consuming and expensive option of the two, particularly if you opt to involve a consultancy firm to conduct the necessary research.
Which method should I use?
A blend of both methods will provide you with a more rounded view of the potential future financial situation for your intellectual property, which may be a more appealing and informative view in the eyes of potential investors or lenders. So, if you have the data required and time to make use of both methods, it might be wise to do so. Pre-revenue customers or those launching a new product or service (and, therefore, without access to historic financials relating to that product), will have to focus their attentions on the qualitative forecasting method.