Why the need to appraise software program value?
Accounting reasons - When an organization invests into the research & development purpose for a certain program with a large amount of money. This investment is recorded as the company's expenses. However, after the value is appraised by an independent appraiser, it can be recorded as an asset, which is more useful and effective in terms of the overall performance of the company.
Company’s asset - Represents the status of the enterprise for use in trading or for negotiation in mergers and acquisitions, especially start-up businesses.
First of all, the software license program in a business organization can be seen in 2 business user groups. First, who utilize ‘End User’ and second, the business groups who develop the program. These are the factors that should be considered:
The license of the program that has been bought as the company's ownership. A license price must exist in the market so that it can be used for comparison which the factors to be taken into consideration are the remaining time of utilization as well as the opportunity that the version will be upgraded for determining the utilization lifetime.
The self-developed program contains a development history from the start until the present is considered from the costs of program development in the past compared to the one the present. However, there are many types of applications that have been emerged in these modern days that are replaceable. Therefore, the ‘Market Approach’ as the valuation method is important to be considered.
For those organizations that develop the program, release or service as a platform. For this case, the software valuation will consider:
First, program development costs, history since the start until the present, see the program components as modules in which the cost of program development can be calculated as ‘Man-day’.
Next, the program’s potential to generate income which is divided into 2 main groups: selling rights which will have implementation fee, modification fee, and annual maintenance fee. On the other hand, for those programs that are platforms for rent will have to pay attention to the number of users on that platform, membership fee compared to market competitors. The other incomes can be advertising expenses etc. As for the platforms that are under development or a conceptual model that has not been released yet, they can be released as well. However, kindly note that it will be a technology valuation or innovation under the assumption.