In an increasingly complex and competitive business world, the concept of value goes far beyond tangible numbers. Intangible assets have gained prominence as essential factors in determining a business’s true value.
If you aim to stand out and maximize your business’s potential, it’s crucial to understand how intangible assets can be the “key to success”.
In this article, we present 10 compelling reasons that demonstrate how intangible assets can further enhance your business’s value.
- Competitive Differentiation: Intangible assets, such as intellectual property and brand reputation, provide a unique competitive advantage. They make your company special in the eyes of customers, creating an advantage that can be challenging for competitors to replicate.
- Long-Term Value Creation: While tangible assets can depreciate over time, many intangible assets, like innovations and brands, tend to appreciate. This offers an opportunity to build sustainable and lasting value for your business.
- Attractiveness to Investors: Investors recognize the importance of intangible assets. A company with a strong brand, loyal customer base, and technological innovations will attract more interest from investors seeking promising opportunities.
- Additional Revenue Generation: Intangible assets such as intellectual property can be monetized through licensing or sale. This provides an additional source of revenue that contributes directly to the business’s value.
- Resilience in Times of Crisis: During challenging economic periods, intangible assets, such as a solid customer base and a trusted brand, provide a more robust platform to navigate difficulties and recover more rapidly.
- Market Expansion: A strong reputation and well-established brand facilitate expansion into new markets. Customers trust recognized brands, which can reduce barriers to entry in unfamiliar regions or sectors.
- Talent Retention: Intangible assets, like a positive work environment and development opportunities, help retain valuable talent. This ensures continuity in operations and continuous improvement.
- Customer Loyalty: Long-lasting customer relationships are built on trust and satisfaction. These intangible assets can create a loyal customer base that returns and refers your company to others.
- Adaptability to Changes: Companies that invest in innovation and technology are better prepared to adapt to market changes. This positions them favorably to capitalize on emerging opportunities.
- Contribution to Corporate Identity: Intangible assets play a fundamental role in shaping a company’s identity and culture. They influence how employees and the general public perceive your business, adding value to your brand.
The accounting of intangible assets in the balance sheet follows guidelines set by accounting standards, such as International Financial Reporting Standards (IFRS) or local accounting standards, depending on the country where your company is located. Here is a general guide on how to account for intangible assets in the balance sheet:
- Identification and Recognition: Identify intangible assets eligible for recognition, based on criteria such as future economic benefits and reliable measurement.
- Initial Measurement: Record the intangible asset in the balance sheet at its acquisition cost, including related direct costs.
- Amortization: If the asset has a limited useful life, allocate its cost over time through annual amortization.
- Impairment Test: Regularly assess if the asset’s value is recoverable. If the carrying amount is higher than the recoverable amount, adjust the asset’s value and recognize an impairment loss.
- Ongoing Measurement: After recognition, the asset is measured at the original cost less accumulated amortization and impairment losses.
- Disclosures: Provide detailed information in the financial statements about amortization methods, estimated useful lives, impairment tests, and commitments related to intangible assets.
Remember that accounting practices may vary depending on adopted accounting standards and local regulations. Therefore, consult an accountant or accounting expert to ensure you are following the correct practices for your jurisdiction and industry.
Investing in the right intangible assets can lead to sustainable growth and lasting competitive advantage. Through differentiation, additional revenue generation, adaptability to changes, and resilience in times of crisis, intangible assets become the foundation for a valuable and impactful company. Remember that a business’s value extends beyond numbers—it reflects the influence your company has on the market and people’s lives.