When many business owners think of assets, they think of their tangible assets. These are assets that you can assign a dollar value to and maintain a generally physical form. Your building, equipment, inventory, and even cash or accounts receivable all qualify as tangible assets.
Of course, businesses also hold a number of intangible assets that they don’t always account for on their balance sheets or often even consider. Yet, intangible assets do hold a value, even if it’s not always clear how to assign a value to those assets.
If you’re struggling with what counts as an intangible asset, keep reading for a quick overview.
What Are Intangible Assets?
If tangible assets are physical and come with a definite financial value, then intangible assets are those assets that lack a distinct physical form or clear financial value. It’s important to note that the lack of clarity on the exact value of the asset isn’t the same as a lack of value.
Let’s take a fairly straightforward with copyright. An author holds the copyright to their old books, which gives them some control over what happens with the books. Those books can or will make the author money, but the exact amount remains a mystery.
Holding that copyright confers value, but the uncertainty of future sales makes its value equally uncertain.
Types of Intangible Assets
There are many types of intangible assets. Not every business has all of these, but here is a basic intangible assets list:
- Patents, trademarks, copyrights
- Licensed software
- Customer lists
You might wonder how your licensed software qualifies as an intangible asset or any kind of asset. It qualifies in a couple of ways.
Software, which lacks tangible form, acts as a productivity enhancer. That enhanced productivity boosts revenue, though not always in an easily measurable way.
Let’s say you sell the business. The software becomes part of the sale and adds value for the buyer. Not sure how well you manage your intangible assets. You can use ESG.
Indefinite vs Definite
Intangible assets also fall into two broad categories: indefinite and definite. Definite intangible assets come with a time constrain on them, such as the period until a patent expires or a contract. After that, they lose meaningful value.
Indefinite assets don’t come with specific expiration dates in terms of value. For example, goodwill or brand names can stay with a company permanently.
Intangible Assets and You
Not in the habit of including intangible assets on your balance sheet? It’s probably time you start since it means you’re undervaluing your business. This proves especially true if selling the business is on the horizon.
Don’t feel comfortable with determining the value? Talk to your accountant about assigning values to those intangible assets. There are several methods that you or your financial advisor can use to set a value for your intangible assets.
Looking for more tips on managing your business finances? Head over to our Finance section and check out more of our posts there.