The Challenge

A home furnishings and furniture business went to lenders with small revenue, because most or all of its income was royalty income. Lenders didn’t like what they saw. The business looked small, the margins looked odd against its financials, and income had been at similar levels for two years. They couldn’t see where growth would come from or how the business model worked.

The Approach

We conducted an IPRSCORE™ for the company. It showed a business with really strong IP: no patents and no software, but trademarks, designs, huge amounts of data and other IP. The company licensed its furniture designs to third-party retailers, who had the furniture made by another third party using the designs and the manufacturing design information shared with them.

The Results

Those licences with well-known big retailers produced minimum royalties, upfront payments and regular, reliable royalties. This was highly leveraged IP generating royalty income in its own right, which could be measured and managed on an ongoing basis. It also explained the numbers lenders had questioned. With almost no cost of sale, profitability was higher than it looked and the financial statements looked different.

It also made the retailers natural buyers. The licensees needed the designs, trademarks and other IP to protect their own revenue, so they would want to buy them in a downside or bankruptcy scenario. The lender was able to take security over those assets. How the IP is presented can change how lenders read a business. The IPRSCORE™ laid out the licensing income and the IP behind it, which the financial statements alone didn’t show.