Intangible assets often make up the secret sauce of your business.
It might be the specific way you do business. Or how your customers like to buy from you. Maybe it’s your customer database, recipes or trade information. It’s the assets you don’t want to make public.
What are intangible assets?
Unlike intellectual property like patents and trademarks that you formally apply and register for, intangible assets don’t have legal protection.
But they can be just as important (if not more).
A great example is the reputation of your business or the credibility of your brand.
It’s impossible to box up your reputation, though you’ll spend years building it. A ruined reputation is probably worse than a competitor copying your idea.
You can usually take legal action to stop another business from stealing your intellectual property. But repairing your good name with the public is a whole different mountain to climb.
Intangible assets worth protecting might include:
Think about personal relationships and established trust you’ve earned with customers and suppliers. This all builds customer loyalty.
What things about your customers and suppliers do you know that would be hard for another business to figure out? You might know:
- What they like and don’t like
- Their kids’ names
- Where they live
- How they like things to be delivered
- Their favorite colors and styles
- Anything else that you can customize to their needs
You might have trade secrets, processes or production efficiencies that you’ve figured out by trial and error over the years.
Maybe you’ve figured out how to get new customers, your client budget cycles and their pain points.
It can take years to develop business relationships, joint ventures and strategic alliances.
What agreements, referrals and word-of-mouth successes have you established?
Your customer data, like addresses, emails and purchase history, provide helpful information about their needs.
Knowing your customer behavior patterns can also help you decide what products and services to offer, the staff to employ and when to make contact.
The benefits of intangible assets
Businesses with intangible assets tend to be worth more than those that don’t.
If you think about some of the largest businesses in the world (Facebook, Google and Apple), the value is in their recurring revenue, number of users, online activity or subscribers. It’s not their buildings or equipment.
Other benefits of intangible assets include:
- Getting a higher price when selling your business
- Reduced chance that competitors can copy you
- Potential ability to charge more for what you do
Locating and protecting your intangible assets
Even though these assets can be critical, you’re unlikely to see them on your balance sheet.
It’s usually too difficult to value them. (Something like machinery is much easier to spot.)
Your knowledge relating to important business activities is hard to quantify. And if you wrote it all down in a business manual, your accountant would only let you include the value of the paper you wrote it on.
But it’s still worth noting and protecting these valuable assets. Start by listing all the things in your business that make up your intangible assets. Then determine how you’ll keep them secret or confidential.
These ideas can help you get started:
- Have all staff, suppliers and others who might encounter trade secrets sign confidentiality agreements or non-disclosure agreements. Yes, they might still steal your ideas. But this will reduce the chance it occurs. You’ve signaled that you’re serious about preventing accidental disclosure. And now you have some legal clout if you want to take action.
- Ensure employee agreements outline that a breach of confidentiality is serious misconduct.
- Share your most precious information on a need-to-know basis.
- Only share information on your website, social media and other channels that you’re comfortable with a competitor accessing.
Valuing intangible assets
It can be tough to value an intangible asset accurately.
You might have spent years developing a process or piece of software. But the accounting valuation will be incredibly low. (You can’t count your labor as a cost in developing an intellectual property or asset.)
An intellectual asset like your business credibility is priceless.
The main point of valuing your intellectual assets is to make yourself aware of how valuable it is to your business and the importance of protecting it.
Consider the cost to your business to:
- Redevelop a process
- Recover your reputation
- Manage a competitor copying your way of doing business
- The loss of your trade secrets
Determining intangible value within your business makes it more attractive later when you expand or sell.
- Audit your business to identify your intellectual assets, each asset’s estimated value and the priority of each.
- Protect these assets in order of importance. Seek help if needed to draft legal documents like confidentiality or non-disclosure agreements.
- Consider whether you should convert any intellectual assets to intellectual property and register them officially with the U.S. Patent and Trademark Office.