What Is An Intangible Asset?

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Assets may vary with convertibility, physical manifestation, and duration, but all of them are equally essential to an enterprise’s success. They play a vital role in the everyday operation and existence of both a start-up and an industry giant in the world of business. Whatever asset your business harbours, hold on to that and try your hardest to protect and expand while also using it for the good of your enterprise; the focus of this content is on intangible asset.

However, let us not forget how sometimes people can be dense, and that includes businesspersons. Most of those people value an asset that can be seen, touched, and converted into cash. Inexperienced entrepreneurs put high importance on those assets that come up on their balance sheets, the one that determines, in the paper, their company’s overall net worth.

More often than not, business people make the rookie mistake of valuing tangible assets more than intangible ones. A survey even stated that 75% of UK companies base their company’s value on how much their tangible assets could be sold for. Fortunately, the number dwindled to 36%, with the remaining percentage now viewing intangible asset’s significant impact on their companies.

Intangible Asset and Its Importance

Intangible properties are unquantifiable but valuable resources that your company owns. It lacks physical substance but drives the long-term success of any business. These types of assets derive their value from a company’s legal and intellectual rights. It also has more than the perishable power of money to back it up. Some examples of intangible holdings are:

  • Brand reputation
  • Strong customer base
  • Human capital and supplier relationship
  • Skills, knowledge, and trade secrets
  • Motivation and vision
  • Intellectual property such as copyright, patent, and trademark
  • Goodwill
  • Contracts, franchise, and license rights
  • Domain names
  • Software and other processes

Since they do not have a physical existence, companies can acquire intangible assets through marketing, brand perception and awareness, customer database, contracts and agreements, and technology.

Contrary to popular belief, intangible properties increase a company’s commercial value and competitive advantage. This is especially true for small businesses that have next to nothing but their intangible asset. Beyond the bare savings and capital, they only have their bright ideas, creativity, and motivation to kick start their entrepreneurial career. And having such intellectual property is already a strong foundation to potentially carve out your name in the big business world.

Almost 80% of a business’s value relies on intangible properties. However, many people often overlook this because of it not having a large dollar sign plastered on its front. Money can do loads for your company, but it can only do so much before being exhausted. In business, monetary value is not the only basis of worth and success.

With that, here are some basic how-tos in managing and improving your intangible assets.

1. Human Capital

The road to achieving a strong brand value and loyal consumer base is through a team of skilled workforce, among many others.

Employees are your company’s most vital asset. They are THE future. Your business is literally nothing without these skilled labourers, so stop treating them as an “unavoidable expense”, and start valuing them for their true worth. Slavery is a thing of the past. You cannot expect an incompetent salary and benefits to produce competent work.

The key is to protect, respect, and preserve your business’ profit-generating machines. You can do this by establishing better employee services, salary, environment, and systems. With this, expect a constant increase of productivity and cash flow to your enterprise.

2. Loyal Customers

Brand reputation is also built on a strong line of loyal consumers. Always remember the rule of thumb in running a business: twenty percent of your consumers most likely generate eighty percent of your profit.

Valuing your customers means putting their needs at the forefront of every business decision. You can establish customer loyalty through honesty and system transparency. Also, invest more in your target market’s wants and needs, such as quality product and service, sustainability, and excellent customer experience.

3. Legalities

As intangible entities, your intellectual property, such as brand name, knowledge, methods, and trade skills, need more than an insurance loan to get protected. These things need legal contracts and documents such as copyright, trademark, and patent registrations. In comparison, others require non-compete and non-disclosure contracts to keep it safe and intact.

If you have questions about how this applies to your business, feel free to get in touch with Annette & Co.!

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Annette Ferguson

Annette Ferguson

Owner of Annette & Co. - Chartered Accountants & Certifed Profit First Professionals. Helping Online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.

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