The move to an increasingly competitive digital economy has seen over 80% of companies shift their focus toward intangible assets. Investing in these assets can unlock a business’s growth potential and breathe new life into productivity.
In this post, we will take a closer look at what intangible assets are, the different types of intangible assets that you shouldn’t let go of, and how valuable they are to your business.
Read on to learn more.
What are intangible assets?
Intangible assets are resources that don’t physically exist but hold a monetary value for a business. Otherwise, these assets cannot be touched, moved, or handled the same way as physical property.
Intangible assets can include intellectual property (IP), brand recognition, goodwill, software, human capital, or even a mailing list of clients. Businesses can leverage these assets to build upon their tangible assets, such as stocks, bonds, land, vehicles, or inventory.
Three qualities make intangible assets stand apart from tangible assets or liquid assets. Intangible assets must be:
Identifiable
An intangible asset is regarded as identifiable if it can be separated. Thus, an individual or company can separate the intangible asset and rent out, exchange, license, transfer, or sell.
Similarly, an intangible asset is identifiable if it stems from legal or contractual rights. Even if such rights can be split from a business or other rights and responsibilities, that asset will remain identifiable.
Controllable
An asset is controllable if a business owner holds absolute power over it. That is, you’re able to obtain future economic benefits from the asset and limit the access of such benefits to others.
The legal rights will often dictate how much control you have over the future return from an intangible asset. While the legal enforceability of your right may not necessarily grant you complete power over the asset, you may be able to control the asset’s future returns in some other way.
Able to generate future economic benefits
An asset is taken as intangible if it can generate future economic returns. There are various ways in which intangible assets can generate future economic benefits for your business.
Alongside other benefits derived from using the asset itself, businesses can generate revenue from cost savings and the sale of goods and services.
Intangible assets that hold long-term value for a business
Despite not existing physically, intangible assets represent potential long-term value for the functioning of a business. As a business owner, there is the need to identify, manage, and amortize (spread out the cost) intangible assets to spur your business’s viability in the future.
The following are four examples of intangible assets that you need to take hold of.
Brand recognition (equity)
Brand recognition is an intangible asset that represents a company’s worth. Maintaining an excellent brand name and reputation can have a significant impact on your company’s ability to generate sales and profit.
Think of big brands like Coca-Cola and PepsiCo. Their brand recognition and trademarked branding are one of a kind.
Customers are more than willing to buy products from a company with positive brand equity, even if it means paying a higher price. Intangible assets like brand recognition can boost your sales and hence, the success of your business.
Customer mailing lists
At present, customer relationships are more important than ever. Mailing lists are valuable intangible assets that can help businesses build relationships with customers in a more intimate way.
There is no shortage of ways to use a mailing list, from sharing up-to-date information with your subscribers to testing out new products and services to analyzing and finding out who your best customers are.
You might also want to use your mailing list to study your customers’ purchase behaviors and reward them accordingly. Understanding your customers can go a long way in your marketing and sales strategies.
Computer systems software
Businesses throughout the world are gaining lots of profits from computer systems software. Intangible assets like computer applications are vital to automating a company’s operations and processes.
With system software, businesses can:
- Cut costs on some routine tasks
- Report lags in business activities
- Improve the efficiency of staff
- Increase office productivity
- Replace paper processes
- Communicate more effectively with clients, suppliers, and partners
By digitizing routine operations, businesses can become more competitive and improve clients’ experiences. That’s why enterprises shouldn’t shy away from investing in computer systems software.
Research & Development (R&D)
Patented or not, results of R&D come under intangible assets. Investing in R&D can help your business acquire new technical knowledge of your product. It can also help you build upon the existing product and see how it performs in the market.
R&D is considered an expense and captured in the profit and loss account. However, because of its economic value, R&D can convert more sales for a business and boost ROI.
Conclusion
Businesses should consider taking hold of intangible assets if they’re looking to scale up their growth and success. As businesses deploy intangibles, they need to keep a clear record of their assets to examine which ones have delivered on the company’s competitiveness and growth.
Continuous assessment will also prove useful in determining what area of innovation a business should focus on.
If you’re struggling to determine how much your intangible asset is worth, speak with a financial planner or bookkeeper. A professional will help you choose the value of your intangible assets and if it makes sense to your company’s overall growth and success.
Worth mentioning here as well is that you can include intangible assets in your will just as you’d do in the case of physical assets. And what is the best part? You can do it yourself without involving a lawyer if you choose to make will online.
Have any questions? Let us know in the comments below, and we’ll get back to you as soon as possible.
