How to Understand Intangible Assets

At the start of your business, you focus a lot on value. How do you create it? (Here’s a hint.) What do you do better than others in the industry? What sets you apart?

Along the way you may end up creating intangible value or intellectual capital.

What?

Yes, you read it right. On the way to creating value for your overall organization, you can create intangible value. Intangible value, otherwise known as intangible assets, are exactly what they sound like: assets that don’t have a physical presence. Read, you can’t pick it up or touch it.

Examples of intangible assets include:

  • Brand names
  • Trademarks
  • Non-compete agreements
  • Licensing, royalty and standstill agreements
  • Lease agreements
  • Franchise agreements
  • Patents

Okay, go on.

Just because you can’t touch it doesn’t mean it can’t provide value. The best way to think about an intangible asset is that it helps you make money.

As a refresher, value is created when a buyer is willing to pay for it. So if a piece of intellectual property gives your investors the belief that they will have future earning power, value is created.

For example, if you patent your technology, it means only you can use that technology now without prior consent. This can provide value to an investor as they know they can now work exclusively with you in order to bring a product to market … and they won’t have to worry about lack of recourse if copy cats arise.

Sounds great. What’s the catch?

Intangible assets have a great deal of risk generally associated with them. So in order to prove value, you have to reduce some of this risk.

Here’s a few ways how you can do just that:

  • Intellectual property – Protect it. If it’s patentable, patent it. Then you can later sell this asset or obtain royalties for others to use it.
  • Customer relationships – Obtain long term contracts. They may not be fun, but contracts are important. They protect you, whereas relationships do not.
  • Workforce – Obtain employment agreements and non-compete agreements. This protects you in case you have an employee that decides to go rogue.

Protect myself. Got it. Anything else?

Intangible assets will grow in value as you expand your market and grow your product. They may be the most valuable assets you have in your business. So pay attention to them and make sure they’re protected.

 

 

2 comments on “How to Understand Intangible Assets

  1. […] goods are delivered changed. Now, goods have become intangible (those are goods you can’t physically touch but still have value) such as cloud-based software, […]

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  2. […] also specialize in valuing intangible assets including technology, patents and contracts. I also offer my business valuation services for estate […]

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