INTANGIBLE ASSETS &
EVERYTHING YOU NEED TO KNOW
The Value of Intangible Assets
Business owners have no problem placing a dollar amount next to the assets they can see: their office, their computer systems, the desk they work on, etc. However, the assets they can’t see are a different story. Intangible assets sometimes hold just as much, if not more, value than the ones that immediately come to mind, but are often undervalued or ignored when calculating total worth. The reason is that most business owners simply don’t know how to value business assets. This article will help you figure out how to place a value amount on your intangible assets so that you see the true value of your worth.
What are Intangible Assets?
This includes all assets you can’t physically touch, such as intellectual property rights, time, and more. Intellectual property rights, in particular, hold a large amount of business asset value; in the modern age, when so much content is created online, the Digital Millennium Copyright Act (DMCA) automatically copyrights information published online. The knowledge that you publicly share online can have a value to your company.
Another intangible asset that you may overlook is the value of technology assets. Much of the technology used in business today doesn’t have a physical presence; rather than purchasing a disc that contains the program or tool, many business owners simply download it straight from the internet. These assets still technically qualify as intangible. And value can be placed on them simply by looking at what their retail value is worth and then adding the amount of revenue they generate for your company.
Here’s a look at some business management software products.
Other intangible assets include trademarks and potential profit. For those who sell websites, for instance, the value of their potential profit is what they can expect to earn in 12-24 months based on the current monthly earning reports. This is how the sale value of a website is determined, for instance.
How to Value Intangible Assets
While it may be tempting to start placing a value on everything you can imagine, it is important to follow the guidelines set forth by federal agencies. Attempting to artificially increase the value of your business can place you at odds with several different agencies and cost more in fines and legal troubles than any value you’d gain.
The primary way to place a value on intangible assets would be to derive that value from acquisition costs. That is, how much would a rival company have to pay to acquire your company, and what would be the breakdown of value?
This is similar to how many freelance workers and consultants base their charges. Their intangible assets include their knowledge and their time, and when you use their services, they’re charging for both. It is also how entrepreneurs justify the cost of an assistant. They ask themselves, “What is my time worth?” If hiring an assistant or outsourcing a task costs them $300, but saves them $500 of their value in time, then it’s worth it to let someone else tackle the task.
Make a list of all your assets, both tangible and intangible, and then go through and place a value on any that you can. For the intangible assets like time, figure out how much you generate each hour in terms of revenue. That’s the value of your time. For assets such as knowledge, consider finding out what others with a similar skill set as yourself charge for consultations and use that as a basis for valuing your knowledge.
To help you get started with your asset list, try this free template.
Other assets, like goodwill and customer loyalty, are more difficult. A customer that purchases a single $15 product may return and spend $2000 over the next several years, but it’s unpredictable. However, having assets such as a mailing list or database of phone numbers can allow you to place a value on each individual customer and then determine total value based on the average.
Examples of Companies with High-Value Intangible Assets
If a company is a household name, that is an intangible asset. Think of Nike. Their slogan, “Just do it,” is now part of the overall cultural consciousness, not just inside the United States, but globally. That slogan alone is worth more than many other businesses, even though it’s nothing more than a basic phrase.
The same applies to Apple and its logo. The timeless, instantly recognizable image of
A third example is the gaming company called Valve. Despite consisting almost entirely in a digital environment, the value of technology assets Valve owns makes it one of the powerhouse companies of the modern world.
When you’re determining your own business asset value, make sure to include both tangible and intangible items. You may be surprised to discover your business is worth much more than you initially thought.