What does it mean for your business to possess an intangible asset? Essentially, an intangible asset is something that holds value that can’t actually be touched. It doesn’t manifest in physical objects and can’t be traded with ease, but this form of asset can often be sold and bought at the same time.
Intangible assets often take the form of intellectual property, or could be based heavily on a company’s goodwill. In many ways, intangible assets can behave similarly to tangible assets. Because of this, it’s vital that your business understands the value of all of its assets, even the ones that can’t easily be calculated.
But what exactly are intangible assets? And what role can they play for your business? Let’s take a deeper look at the value your business holds that’s hiding in plain sight. In this piece, we’ll define intangible assets and look at how they can be valued and sold.
(Intangible assets have soared in the US. Image: 10th Magnitude)
Defining intangible assets
Firstly, it’s important to define intangible assets. While tangible assets can relate to your office materials, company vehicles and general inventory, intangible assets are a little bit more tricky to identify.
Intangible assets can refer to the copyrights, patents and trademarks that your company holds. Your website’s domain name can also be recognised as an intangible asset. Your proprietary computer software and in-house marketing campaigns may be seen as intangible assets.
Even more difficult things to quantify, like your business’ goodwill, trade secrets or the knowledge and expertise of your employees are intangible assets for your company.
Considering how tricky it can be to quantify the intangible assets listed above, it’s perfectly reasonable for business owners to misunderstand the value of the assets that they can’t see. But they can fundamentally act as a key player in raising the valuation of your company.
To help you better understand the intangible assets you hold, it could be worth taking the time to stop and list out all the assets that you feel help to set your business apart from its competitors. These could refer to trademarks, patents, or in-house software. Think about what helps you to stand out. What knowledge does your employees possess? What has your business developed? Have you built an attractive website? Successful marketing materials? Be sure to scour your business – intangible assets can arise from unlikely places.
According to LegalZoom, one of the most valuable assets a company can possess is goodwill. This can include a business’ reputation, its client relationship and its respective stature in an industry. The definition of goodwill can also extend to its employee and contractor relationships. These can all be considered as key factors behind a successful business but wouldn’t necessarily be seen on a list of company assets. For some, goodwill is as integral to success as raw ability.
Naturally, the most common way of determining the total value of a business’ intangible assets is to subtract the company’s book value (assets – liabilities) from its perceived market value. The difference here is the value of the intangible assets. However, it’s also possible to value each intangible asset on its individual merits.
For instance, your company could own a patent for a type of toothbrush design. If you choose to sell that patent, you could determine the value by comparing it to similar valuations of similar patents – or by looking at the revenue generated from the use of that particular patent. On the other hand, if your business developed a software program, you could determine its value by considering the cost of similar programs, or by estimating the price of asking a developer to create a similar program.
Selling your intangible assets
Now we’re up to speed with the definition of intangible assets, and its unconventional sources, it’s time to look at how they could be cashed in on.
Some general intangibles, like business processes, can effectively be packaged and sold. While you may feel that this could only be applicable to things like software programs or domain addresses, it could actually refer to just about anything – even your staff expertise. It’s entirely plausible to record your house styles and practices in a book based on ‘principles and practices at Company X’ and sell it to interested parties. This approach doesn’t have to relate to all of your business secrets however, and your insights can just be those that are transferable to other businesses.
It’s also entirely possible to sell your copyrights. In the music industry this is common practice. Musicians regularly sell copyrights to use their music, however this usually takes the form of licencing their rights. Such licences are known as Creative Commons Licences.
In the 21st Century, your business’ presence online can be extremely valuable to other organisations or individuals. Things like Twitter or Instagram handles or social media accounts have been known as significant intangible assets that can be sold on to interested parties who are willing to pay through the nose for better exposure online.
Prop up your business value
Once again, goodwill can be a driving force behind the successful sale of a business. When it comes to a business sale, especially one where you’re selling the business as a going concern, goodwill can make all the difference between a fair market price or book value of all business assets and the sale price.
Other common intangible assets and intellectual properties can also be valued and included in the selling price of a business.
If you find yourself in a position where there is interest in the purchase of your company, it would be a mistake to forget to factor in your intangible assets into a prospective sale. Everything from your client relationships to your industry secrets to your website name can help to boost the selling value of your company. While the sum total of your assets may be accounted for, it’s vital that an itinerary of your intangible assets is taken and assessed accordingly before negotiations take place.
Licence your assets
You may also want to consider licencing your intangible assets for external use. If your business has patents or trademarks, you can licence the patent rights to someone who can produce products from them. This approach can help your business to receive royalties on a recurring basis and set up a criteria for the use of the products made from such assets.
If your company is looking for a windfall without the need of selling valuable office equipment or tangible assets, licencing your assets for a permanent sale could be an effective way of cutting losses and refocusing your expertise towards building new intangible assets moving forward.
Look into attorneys
For most of the ways to use your intangible assets, it’s advisable to hire an attorney who specialises in this form of sale or transaction. An intellectual property lawyer can help businesses to approach the difficult world of selling and licencing assets that aren’t physically accessible.
Fundamentally, intangible assets can play a significant role in defining the personality and success of a company. They can also hold a lot of value if your business decides to sell up. The most important thing to do as a business owner or decision maker is to look at your company beyond its component parts. Value can be found in many places, and not all of your valuable assets will be visible to the naked eye.