What are intangible assets and how to make your business grow with them?

What are intangible assets? If you are an entrepreneur and have a new company or are already growing your business, you probably know that the activity requires a lot of effort. It takes a lot of time and money to get the idea off the ground and make the venture thrive.

Now, would you know how to indicate the value of your business name, brand, customer list, and other things that are not physical of your business?These are examples of intangible assets, which often end up being forgotten or not so valued.

But they are fundamental. Want to know more about intangible assets and how to make your business grow with them? So enjoy this content!

What are the differences between tangible assets and intangible assets?

Knowing the definition of intangible assets makes it easier to differentiate them from tangible assets—which are just the opposite.

That is, those assets that physically exist and can be touched, for example: land, buildings or rooms, vehicles, computers, printers, and so on.

However, the differences are not limited to the physical existence or not of the asset. Another major difference concerns the liquidation and sale of an intangible asset. After all, how to measure something that does not physically exist, cannot be touched or seen?

In addition, tangible assets suffer from depreciation while intangible assets are amortized.

Depreciation is the reduction in the value of tangible assets through wear and tear. Amortization is the accounting reduction of intangible assets, due to their use or obsolescence.

As intangible assets do not suffer depreciation — as they do not physically exist, their useful life is defined to amortize them, which can take place in two ways:

  • Defined: is the defined period in which the asset is expected to generate net cash inflows. Thus, amortization must be calculated according to the estimated economic utility of the asset;
  • indefinite: in the event that there is no foreseeable limit to the period during which the asset will generate net cash inflows. In this case, CPC 01 requires an annual impairment test to be carried out or whenever there is any sign that the asset has been devalued.

How important are for a company?

The way a company establishes itself in the market has changed over the years.

Before, what demonstrated the strength of a company was the physical part (its assets, machinery, fleet, etc.). However, currently, the knowledge produced by it has more visibility and makes it grow.

Therefore, it is possible to find in the market many companies with a market value higher than their book value.

This phenomenon happens due to the value of its intangible assets, in which the capacity for innovation and human capital are more recognized than physical assets themselves.

Intangible assets are the new ones responsible for building a company’s wealth.

They will contribute to increasing the confidence that consumers feel in relation to the products and services offered by it. Therefore, companies of all sizes need to be concerned with the topic.

It becomes a mistake to focus only on tangible assets — no matter how important they are.

And many entrepreneurs don’t understand how their brand or customer base, for example, affects the value of their business. Thus, they leave aside a great potential for appreciation.

What is the role of intangible assets in the growth of a company?

Imagine that one day you decide to sell your company. Over many years of effort and investment, it has the know-how of the activity, it already has an established customer base and a recognized name in the market.

Would you know how to quantify this intangible heritage built during all this time? Or would you sell the company considering only the physical assets that would go to the new owner?

It is common for entrepreneurs to sell their businesses for a lower price than they are actually worth. This is because they cannot determine the value of the company taking into account the set: tangible assets and intangible assets.

Therefore, regardless of the size of the company, it tends to be highly recommended to frequently carry out the equity valuation of intangible assets, which are decisive for the market valuation of your company — even more than tangible assets.

And not only evaluate them, but invest in them. Companies that invest in human capital , for example, in addition to optimizing their operational processes by offering better products and services to their customers , tend to gain more space in the market.

This dynamic, in the long term, can contribute to the company’s growth. Therefore, a company’s focus should not only be on practices with expected short-term results. It is necessary to think about how the measures taken today can impact the value of the business in the future.

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