Intangible assets are valuable resources that belong to your business but, unlike tangible assets, they are not in a physical form. They include goodwill, intellectual property, customer relationships, etc.
What are intangible assets?
The main characteristic of an intangible asset is that it lacks physical substance. You cannot touch it or see it. They are generally long-term and derive their value from your business’ intellectual or legal rights.
Examples of intangible assets can include:
- your reputation
- skills and knowledge
- trade secrets
- secret formulas or processes
- research findings
- intellectual property (patents, designs, copyright and trade marks)
- employee, customer and supplier relationships
- franchise rights
- licence rights
- domain names
- proprietary software and processes
- skilled and competent workforce
You can create intangible assets through:
- contracts (service agreements, lease agreements, use rights, etc)
- technology (patents, software, secret recipes, etc)
- customers (customer lists and databases, open orders, production backlogs, etc)
- marketing (trade marks, domain names, brand perception, etc)
Intangible asset valuation
Because they lack physical properties, intangible assets are often difficult to keep track of and measure. However, they can add significant commercial value to your business and often form the basis of a business' competitive advantage.
For valuation and accounting purposes, you should only list intangible assets on your company's balance sheet if:
- you have acquired them for a price
- they have an identifiable value
- they have a useful lifespan
In this case, they should appear on your company's balance sheet as long-term assets valued according to their purchase price and - if applicable - amortisation or depreciation schedule. See more on depreciation of assets.
Assets that you have developed internally often don't have reportable costs and, as such, you should not list them on your company's balance sheet. Find out more about business asset valuation.
Managing intangible assets
Although some intangible assets may not appear on the balance sheet, it is worth taking stock of all your resources and finding an effective way of managing them. See more on managing assets in business.