What is an Intangible Asset?
Most businesses have some form of intangible assets. They’re the company’s resources that have no physical presence or attributes. They can include:
- Intellectual property
- Brand equity
- Customer relationships
- Domain names
- Licensing agreements
Unlike tangible assets – inventory, equipment, and so on – intangible assets can’t be destroyed by fire or flooding. When a business is built around intangible assets, which is often the case with consultants, speakers, and creatives, it a disaster or crisis might seem less devastating.
Intangible assets are categorized as limited life and indefinite or unlimited life. As the term suggest, limited life intangible assets have a time-limited life or value. Copyrights and patents are examples because they expire. Indefinite or unlimited life intangible assets – goodwill or reputation, for example – don’t have a definite end date.
Accounting and Intangible Assets
The cost of acquiring certain intangible assets – trademark fees, for example – must be reported on a company’s balance sheet but because many intangible assets can’t be and aren’t purchased, there’s often no cost to report. There’s no way to establish costs associated with a business owner’s trade secrets or industry expertise, for example. For that reason, valuable intangible assets often aren’t included in accounting reports.
While it is often impossible to put a price tag on the value of intangible assets, it’s not hard to see that they have value. Apple has built an empire around its brand loyalty; the real estate agent with a reputation for integrity or neighborhood experience doesn’t have to work as hard for referrals as a competitor with characteristics that are less valued. Intangible assets can protect the company’s brain trust, attract customers, and provide a competitive edge.