ntroductionAs a Franchisor , branding is important to us, not so much as a logo or trademark, but at an SMElevel it is more about having a certain standard of franchisee that won’t bring the Franchise intodisrepute, so we are more aware of ‘brand’protection than most. Our Franchise agreement hasterms which incorporate standards of behaviour and doing business in a certain way with sanctionsin place if a Franchisee misbehaves. Therefore , whilst we cannot attempt to have the brandrecognition ofsay Uber, Google or Coca Cola, we do have our own reputation and that of ourindividual Franchisees to protectHow much of a brand’s value can be captured on the balance sheet?This is mainly an intangible asset and from an SME perspective it is moreto do with Brandmanagement than valuation. The value of the Brand to us is about service delivery and havingprocesses and people in place to deliver what we say we deliver as a Franchisor .The human side of the relations with our Franchisees cannot beunderestimated and we spend a lotof time energy and cost in keeping in regular contact with our Franchisees both digitally and face toface. Therefore we can have some valuation in our assets such as websites and digital interfacecosts, but the true value is in our people which we can’t put a price on.Larger organisations and better known brands maybe able to put a value on them using lifetimeincome generation ( NPV models) oramount spent on marketing , but it is a brave organisation thatwants to capitalise these costs onto the balance sheet , especially with the advent of social mediaand the commoditisation of opinion that means a brand’s value can be wiped out overnight.My own personal view is reliance on asset valuations of a brand can only mean too much emphasison shareholder value and dubious accounting concepts rather than a hard nosed approach to thetrue worth of the brand, especially when there are charismatic founders involved .The growth of Unicorn companies is a case in point with noreal tangible assets but rather a digitalplatform that has created shareholder value more out of hope and hype than anything solid. ( e.gUber)What are the accounting and reporting rules associated with brand valuations?The principlesdepend on whatvaluation method is used either cost based, income based or marketvalue. Either way I personally am not comfortable about any of these methods at an SME level. ,especially when we have covenants for balance sheet values which support substantial borrowings,My one thought is who are you trying to kid, and why would you want to value the brand in the firstplace?Do finance directors of smaller firms understand brand value and how it can be leveraged?yes, , from aFinance perspective it would be a verybrave FD who tried to borrow against a brandvalue ( see above) . However, FD’s recognise the importance of a marketing and sales perspectiveon brand recognition and there will have been infrastructures put in place which support thestrategic intent andbrand protection. Boards of Directors will manage risk from a brand orreputation perspective whilst also concerned about the sustainability of the business which is relianton it’s tacit knowledge, brand management and , in short., the way things are done.If an FD wants to leverage the Brand and help the business grow then placing a value on the brand isbetter done by getting the stakeholder ( e.g. a bank or funds provider) in front of thesales/marketing team and understanding the message and understanding how vital the logo,mission statement and brand awareness is in comparison to the actual service/product delivery. An FD may also want to ensure that there are surveys or focus group feedback studies which may ‘ add value’ to the brand but not in atangible sense. At an SME level the brand and the Board are muchmore in tune with each other.How can smaller firms protect their brand equity?Apart from the usual IP issues and registering trademarks etc, the acid test is to dowhat it says onthe tin, period.How do firms determine whether they should use income-based, market-based or cost-basedevaluations?I personally think all these issues are flawed and a firm must have a good reason to want to valuethe Brand. In olden days this was called ‘Goodwill’and only really manifested itself in a sale of thebusiness which is the ultimate test of what someone is prepared to buy the business for, so the truevalue of a brand is only what the marketis prepared topay. I can’t think of a really good valuationmethod that would stack up and be enduring knowing the uncertaintywe face in the market placeand the threat of new entrants and the disruption of business models via technology which wouldmean Ipersonallywould havelittleconfidence in puttinga brand value on the balance sheet.If you look at surveys of business confidence the new normal appears to be that we are dealing withmore uncertainty than ever, the pace of business and the pace of change is faster than ever, sobrand valuations are probably too subjective to mean anything.You might as well try and put a value on ‘sustainability’ which , if you were a BHS director, mayactually be negative.
