Traditionally, businesses have focused on tangible assets such as equipment, buildings, and inventory. However, with the rise of technology and knowledge-based industries, intangible assets such as intellectual property, brand reputation, and human capital have become essential components of a company’s value. We explore why business intangibles are important and how they are valued and discuss how businesses can leverage their intangible assets to achieve sustainable growth and competitive advantage.
What are intangible assets and what are their challenges?
Intangible assets are non-monetary and non-physical assets of a business that have a multi-period useful life. Some examples of intangible assets include software code, internet assets, the brand or intellectual properties or registered IP of a business, and even the specific regulatory approvals of a business.
For example, a finance company may be an approved operator, they might have an Australian financial services licence or credit licence and that forms part of the intangible assets.
One of the major challenges of intangible assets is their accounting treatment. The way that accounting standards operate in Australia is that a balance sheet quite often doesn’t reflect the true current market value of intangibles in financial statements.
The real-life value of what intangibles are worth in a sale event is very different from what they’re actually stated on a financial balance sheet of a business. This is because the accounting standard doesn’t align with the real life process of the sale.
Another challenge with business intangibles is they often require a specialised valuation process and method.
5 top tips to extract the maximum value of intangibles
Value your business properly!
You may need to use a specialised intangibles valuation specialist. If the business that you own or you’re looking at buying has intangibles incorporated, i.e. it’s got a high level of IP or contract value, then it could be very worthwhile engaging an intangibles valuation specialist. We’re happy to put you in contact with some of the best in the industry.
Manage your data leakage and confidentiality
In business, confidentiality is really important. When the business particularly has a proprietary process or confidential information, you need to manage one of the key risks to business valuation decline – data leakage and confidentiality of your proprietary and client’s confidential information.
Confirm and maintain your ownership
The custody and chain of title of your business assets need to be in order.
Own Your Brand
Make sure that you actually own your brand and trademark. If you look at Kmart or Walmart for example, they own the name ‘Kmart’ and ‘Walmart’, they have the registered trademark for ‘Kmart’ and ‘Walmart’. This is crucial to extracting maximum business value.
Use a funder that applies a lending margin or value to your intangible assets
If you’ve got a lender who’s looking at lending against the total value of the business versus just the hard assets, there’s a very material difference in the amount that they would be able to borrow.
For more information on business intangibles or how to better leverage these to grow your business, contact us today.