Licensing Agreement Could Put Toothbrush in Stores
Q: I have a start-up company that has patented and manufactured a unique children’s toothbrush. It is selling at a few local drugstores, but after development, I have little money left for marketing and advertising. Can I distribute the product myself? Or should I try to license it through a large company?
--Michael Haddad, Santa Monica
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A: Since you’ve already got your patent and a little sales experience with this product, you’ve got some tremendous assets going for you. You’ve taken the right steps.
But the manufacturing of toothbrushes is a very sophisticated process, and the machinery used is quite complex, as you’ve probably realized. It’s probably most advantageous for you to enter into a licensing agreement with an existing manufacturer so that you can piggyback on its marketing clout.
Research the market and find out who is making toothbrushes. Target several smaller toothbrush manufacturers who might be interested in expanding their lines. The largest producers in the industry are typically less interested in taking chances on new products--especially when they haven’t developed them in-house. But the secondary manufacturers, hungry to compete with the big guys, are likely to be more receptive. If you can find one that does not already carry a juvenile-product line, it would potentially be a great match.
Make up a product sheet that includes your patent numbers, pictures of your products and some copy announcing the virtues of your line. Then send it out to the companies you are targeting and ask for an appointment to show them some samples and discuss licensing.
If you get a company interested in licensing your product, make sure you ask for an advance against future royalties, which will ensure that these people are truly interested in working with you. Since you’ve already done a substantial amount of upfront work in developing and patenting the product, you should ask for no less than a 5%-per-unit royalty on the manufacturer’s selling price. Make sure you have some professionals review any agreements and advise you on negotiations before you sign.
--Henry C. Keck, founding
partner, Keck-Craig Inc. product
engineering firm, Pasadena
Listing Broker Can Help Fill Business Vacancies
Q: My family and I own two shopping center strips and we are looking for a new tenant in each. Whom do we contact to help get these vacancies filled?
--J. Feldman, FELFAM Ltd.,
Northridge
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A: You’re looking for someone who will find and screen potential tenants for your property and put together a lease deal. This person represents you in negotiations and is known as a listing broker. The professional who represents a client business looking for a space is known as a tenant broker.
The best way to find a listing broker is to drive around your area and jot down the names of brokers who are already working for properties similar to your own. If your space is fairly small, the larger brokerage companies may not be interested, but they may take your listing if they see you as a potential repeat client.
Make sure that your broker gets a credit report and financial statement from any potential tenant and brings only credit-worthy prospects to your attention. And look carefully at the terms of the listing agreement, which details the timing and the amount you’ll be paying the listing broker for securing tenants for you.
This agreement will call for you to pay a commission at lease signing, and it may include a clause providing the broker a second commission on any extension of the lease. Those details are negotiable, but the standard commission is between 6% and 8% of the total rental payments over the term of the lease.
The commission is usually made in payments, with half due when the lease is signed and half on a date to be determined. Most large firms will request that the second half be paid early, say at the tenant’s move-in date. If the owner does not have the cash, a different payment schedule may be set up.
--David Mason Eichman,
attorney specializing in real estate
and business formation,
West Hollywood
Intangible Assets Make Up ‘Goodwill’
Q: Please define the business terms “goodwill” and “market value.”
--Charles Baines, Los Angeles
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A: The term “goodwill” is a catchall used most often in the context of business valuation. It basically represents all the intangible assets that a business has built up over the years--things like a loyal customer base, long-term vendor relationships, a Rolodex of contacts, a proven name, proprietary product lines and a trusted reputation. Skilled employees, proven distribution channels and profitability are all part of the goodwill that a buyer acquires when purchasing a successful business.
It is difficult to assign a numerical value to goodwill, but it definitely affects the price a buyer can get for a business. The more goodwill, the more a business is worth.
“Market value” is generally defined as the price that a willing buyer will pay a willing seller for a commodity, a product or a business, considering all the relevant background facts such as price fluctuations, general economic trends and the condition of the product.
The price that a product fetches in the marketplace is usually different from the seller’s asking price, the “book” value and the buyer’s ideal price, since it represents an informed compromise.
--Bob S. Singh, president, Rent
a Business Broker, Glendale
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If you have a question about how to start or operate a small business, mail it to Karen E. Klein, Los Angeles Times, 1333 S. Mayflower Ave., Suite 100, Monrovia, CA 91016, or e-mail it to kklein6349@aol.com. Include your name, address and telephone number. This column is designed to answer questions of general interest. It should not be construed as legal advice.
