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In today’s market, buyers are increasingly setting their sights on businesses with intangible assets that will drive their corporate growth strategy. As a result, business owners, in search of growth and ultimate divestiture, need to understand the nature of intangible assets and how they may increase the value of their businesses.
An intangible asset is often defined as a non-monetary asset that lacks physical substance. Loosely defined, the term includes general business goodwill and identifiable intangible assets that are capable of being separated from the business.
As valuators, we group identifiable intangible assets into the following categories:
Included in intangible assets is “Intellectual property.” These are intangible assets for which legal protection is available, including patents, trademarks, copyrights, industrial designs and trade secrets, among others. You should discuss the benefits of such protection with your legal counsel.
Non-identifiable intangible assets are collectively referred to as goodwill. Examples of non-identifiable intangible assets included in goodwill are workforce, location and reputation.
In order to understand intangible assets in the context of your business, it is useful to understand the components that make up your business’ value.
This diagram illustrates the relationship between the various components of your business’ value and the relative risk associated with each component:
Owning and using intangible assets can increase your business’ value by delivering a variety of benefits:
Understanding your intangible assets –- including their related benefits and risks -– better positions you to achieve your business’s growth objectives and command an attractive price when you are ready to sell or transfer ownership of your business.
This article was originally published by Canadian Capital on September 13, 2011. Read the original article here.
Steven Hacker, CA, CBV and Amanda Salvatori, CA, CBV are chartered business valuators with MNP LLP and have valued multiple intangible assets including brands, trademarks, customer relationships and technology for the purpose of financial reporting, income tax planning/compliance and acquisitions and divestitures.
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