Intangible Assets: What Do They Mean?
Accounting for your company’s tangible assets is a pretty straightforward business. However, are these the only valuables for which you have to account? What about the intangible properties? You could run the risk of devaluing your business by ignoring the latter. Here’s what you need to know.
What Are Intangible Assets?
Before you can determine whether you’re devaluing anything, you’ll need to know what intangible assets are.
Simply put, these assets are those that can’t be touched. Accordingly, what’s intangible and tangible are solely differentiated based on whether they can be visceral and visualized concretely. Non-material valuables include brand recognition, copyrights, patents, trademarks, customer lists, goodwill, and so on. These aspects of a business are almost invariably long-term and can be used for a period of several calendar years.
They’re also typically grouped into two different categories:
- Intellectual property
Intellectual property includes all the assets, which are the product of your intellect. This property refers to any kind of creation invented by your mind, for example, a marketing logo or brand design.
You completely own the rights to your intellectual property. Accordingly, any unauthorized use of it by others, such as copying without consent, is strictly illegal. Other resources that fall under this category include trademarks, licensing, and patents.
On the other hand, assets measured for goodwill include brand reputation, customer base, client relationship, employee management strategies, and so forth. These elements are considered long-term immaterial valuables because they can significantly impact your business’s scalability.
The following list specifies some customary intangible assets for your business’s steady growth:
- A steady and trusted brand reputation
- Trained staff
- A steady customer base
- A dependable supplier and distribution network
- An operative website domain
- Internal technology and system of networking/strategizing
Methods For Valuing Your Intangible Assets
Finding the value of tangible assets is a simple process. Arriving at the total figure involves adding up the individual costs of your investments. Nevertheless, this amount won’t reflect the complete worth of your company. Your immaterial possessions also have a fair share in contributing to your business’s success.
However, valuing these properties isn’t as straightforward. This is because most untouchable resources don’t have a fixed corresponding value.
Valuing your intangible assets is an integral part of determining your business’s financial standing. In case you wish to sell your business, your immaterial properties will have to be taken into account.
If you’re unsure about the value of your non-material assets, consult a financial expert. You also have the option to use any of the following methods to appraise these elements on your own.
- Cost method: This valuation method involves estimating the costs required for recreating your untouchable asset. You may factor the current costs a business would need to duplicate your valuable, or you may factor the present expenses that went into it
- Market method: With this approach, you use a reference point to figure out a value for your immaterial possession. You factor the cost of other businesses’ intangibles and apply those numbers to your brand
- Income method: You secure an estimate of the value your tangible property will bring to other companies or buyers. Arriving at this figure involves assessing the cash flow projections
Accounting For Intangible Assets
You don’t typically account for your immaterial properties. They should only be recorded on your balance sheet if your business bought or acquired them. There are also particular prerequisites associated with these resources. For instance, the intangible good you’re looking to record must come with a sustainable life-span and possess a recognizable value.
An internally created brand logo is an example of an intangible asset that won’t appear on your company’s balance sheet.
The Bottom Line
Although touchless, immaterial assets still remain your legal property. Knowing the intangible meaning for your possessions prevents you from undervaluing your business. In the end, you can rely on any of the specified methods to project your own valuation or hire professional help.