An intangible asset is something of value that you can't actually touch. It's not a concrete object. It's often intellectual property, or it could be the company's goodwill, as described below. Intangible assets have a value just as tangible assets do and it's important for your business to understand its true overall value by including intangible assets in its valuation.
Types of assets
Examples of tangible assets are a building your business owns, your business's inventory, or your company's delivery truck. An intangible asset could be:
- A copyright
- A trademark
- A patent
- Domain names
- Proprietary computer software
- A business's goodwill
- Trade secrets
- Marketing campaigns developed in-house
- Your employees' knowledge base
Both tangible and intangible assets have value and can be important to your business.
Discovering your intangible assets
As a business owner, you may not realize that you have intangible assets because they aren't things you are seeing or touching. But they add value to your business and can be quite valuable on their own.
Start by listing the intellectual property your company owns, such as trademarks, patents, copyrights, or software. Then think about what makes your company different from your competitors. How does it stand out? What kind of knowledge, procedures, and processes make it unique? Then consider intellectual property your company has developed, such as websites, marketing materials, software programs, and so on.
An important intangible asset is your business's goodwill. This includes its reputation, its relationship with clients, and its standing in the industry or region, as well as its relationship with employees and independent contractors. These are all essential parts of what makes a business successful but are not things you would see on a list of company assets. Some people say that goodwill is the synergy behind your company that makes it successful.
Valuing intangible assets
The common way to determine the overall total value of a company's intangible assets is to subtract the company's book value [assets minus liabilities] from its market value. The difference is the value of the intangible assets. However, it's also possible to value each intangible asset on its own.
For example, your company owns a patent for a type of shoe insert. If you decided to sell that patent, you could determine the value by comparing it to other valuations of similar patents or by looking at the revenue that is generated by the use of that patent. If your company developed a software program, you could determine its value by considering the cost of similar programs, or estimating what it would cost to pay a developer to create a similar program.
Valuing goodwill
Goodwill is a very important intangible asset and every company has some form of goodwill. It can be hard to put a number on goodwill, though. Part of the problem is that it's based on qualities that are very subjective. The value of goodwill is tied to how well your company is doing. If business is great, goodwill may be high. Goodwill could be low or even negative, if your business is in trouble or insolvent.
Goodwill is highly dependent on your income and growth as a company. Accountants would suggest that you use the same calculation you used to determine the total value of your intangible assets and then subtract out the value of the other intangible assets. That is, start by subtracting book value from market value. Then subtract out the value of assets like patents, trademarks, domain names, software you've developed, and so on until you've taken out every other intangible asset you own. The number you are left with is the value of your company's goodwill.
You can get help in determining a value for your company's intangible assets by working with an accountant or with an attorney, either on your own or through an online service provider. Understanding and valuing your company's intangible assets can help you better understand the true value of your business.
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