It is important to understand how to value your intangible assets to get a realistic picture of the true value of your business. A good attorney, accountant, or online service provider can help you determine the value of your intangible assets. Understanding how to value intangible assets will help you make an informed decision when selling your business.
Intangible assets are assets that do not have a physical form, such as software, patents, trademarks, or goodwill. While these assets can be difficult to measure, they are an important part of a business' success. Understanding their value will help you make the best use of existing assets and acquire new ones. However, it is important not to place too much or too little value on these assets. If you do, you may inflate the value of your business stock or affect your depreciation accounting. Moreover, competitors may try to buy the assets at a lower value than yours.
Unlike tangible assets, intangible assets are more difficult to measure. Even though they cannot be physically touched, they are valuable on their own. To calculate your intangible assets, you must first list the types of intangible assets that your business possesses. This includes trademarks, patents, copyrights, software, and other intellectual property. Think about how unique your intellectual property is and how valuable it is.
Your business' goodwill is another intangible asset. Goodwill is a business' reputation, relationship with clients, and reputation within the industry. It is not included on a company's book or market value, but it is vital to the success of your business. Often times, goodwill is not listed in a company's list of tangible assets, so some say that it is the synergy behind the business.
Another example of intangible assets is the software your business developed to manage inventory. Even though you may not sell this software, it is still a valuable asset. It must be amortized over its useful life. In our example, the software cost $10,000, and its useful life is three years.
Intangible assets are more difficult to calculate than tangible assets, which means you'll need to hire an outside business evaluator to do the work. These professionals can identify the unique assets of your business and assign them a value. If you don't want to hire an accountant, there are many financial tools that will do the work for you.
Another option is to buy intangible assets from a company that already has them. Many companies are willing to sell these assets for less than their actual worth, as long as they get the production rights and patents they need. Buying intangible assets can be a smart way to start a business.
A unique brand name, like Nike's, can easily be valued at more than the company's tangible assets. However, the value of these intangible assets can diminish with time if they're not properly maintained. For example, a fraud scandal or a social media slip-up can severely damage a company's good name. Consequently, a company can lose business or lose long-time customers.