What is an intangible asset?

What are intangible assets?

These are assets that lack physical substance. While they exist, they only do so on paper: they’re still important resources owned and held by businesses, and they hold value, but intangible assets are more abstract. No matter what size your business is, intangible assets comprise a significant portion of a company’s overall value.

Examples of intangible assets include:

Intellectual property

Patents, trademarks, copyrights, and trade secrets are prime examples of intangible assets, giving companies legal protection from plagiarism or fraud, while also offering additional income streams through licensing.

Technology and know-how

Research and development are one of a company’s most important departments. The knowledge, expertise, and proprietary technology that it develops not only provide a competitive advantage in innovation but are also protected via patents and copyrights. This wards off the potential of duplication and knockoffs from competitors or unauthorized companies. Many of these advanced developments also fall under the category of trade secrets.

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Reputation and customer goodwill

The reputation and recognition that a brand holds in the market are highly valuable intangible assets: a hit to a company’s reputation can also hit its bottom line. A company’s direct values related to ethical practices or community engagement can also contribute to goodwill and a positive reputation. Global brands, for example, have developed their reputations across generations of customers in different markets in order to succeed and thrive.

Similar to a company’s reputation, strong customer service can contribute to customer loyalty, repeat business, and positive word-of-mouth marketing. Concepts such as trust, loyalty, and perception can all influence a customer’s purchasing decisions.

Franchises

While the physical locations of a company’s franchises are tangible assets, the agreements between a company and a franchisor are intangible. This relies on contracts, licensing fees, payments, and the goodwill associated with how successful a franchise will fare in a certain location. Additionally, the deeds associated with these properties are also intangible assets, as they’re legal proof of property ownership.

How intangible assets are developed

Developing and expanding intangible assets is done primarily through legal means. Expert teams learn the skills necessary to navigate the intricacies of patent laws across different countries or charge the proper fees to franchisors without falling into financial trouble.

Sales teams might look into partnerships with other companies to further license their designs and trademarks, such as car manufacturers signing deals for their cars to be built in foreign markets, under license. In this case, working with local companies can help a company gain a foothold in a country’s new market, which is one of the key steps for a company to become a global brand.

While a gleaming office building or fleets of trucks with your company’s logo are the most visible examples of tangible assets, the influence afforded by intangible assets is vital: they can result in increased market share, enhanced competitiveness, and long-term sustainability. In an increasingly competitive marketplace, these intangible assets are more vital than ever to prioritize innovation, protect intellectual property, foster strong customer relationships, and cultivate a robust brand identity.