The Importance of Intangible Assets

According to business sales data (BIZSTATSTM) approximately 60% of a business sale price is allocated to intangible assets. This figure varies greatly from business to business, however, the value of intangible assets in a modern age is increasing. Let us explain.

What are ‘intangible assets’?

Intangible assets are assets that don’t physically exist. I.e. They cannot be seen or touched but still form part of the business. They cannot be transferred physically from one party to another but can be transferred via legal documentation. Examples of intangible assets include, but are not limited to:

  • Goodwill
  • Intellectual property
  • Franchise agreements
  • Copyrights, trademarks & patents
  • Symbols & logos
  • Software
  • Domain names and websites

Tangible assets, on the other hand, are the exact opposite. Physical in nature, these include assets such as plant and equipment, land, vehicles and other inventory.

Why are intangible assets important?

The importance of intangible assets increases depending on the type of business and what intangible assets they own but typically are valued according to the profitability of the company. As we near 2020, many businesses have a large online presence or operate solely on e-commerce. Large corporations such as Facebook may not have many tangible assets, but their intangible assets are plentiful. These increase the value of the business, and if it were to be sold would directly affect the sale price.

How do you put a price on intangible assets?

With intangible assets forming such a large part of the overall business value, it is important to assess all assets owned by the business you’re looking to buy and check the following:

  1. How do these intangible/tangible assets relate to the operation and overall profitability of the business?
  2. Can these assets be secured with contracts or registration and be legally transferred?
  3. How are these assets transferred to me, the buyer if the business sale goes ahead? As legal transfer of ownership is critical.

The assessment of a business’ assets, whether tangible or intangible forms part of your due diligence when considering a business purchase. For assistance navigating your way through the business sale process, contact Core Business Brokers today on (02) 9413 2977. There are many areas to consider when embarking on your journey. Let us guide the way.