How Intangible Assets Impact the Value of a Company

Key Takeaways

• Identify the “Hidden” Value by cataloging assets that don’t appear on a traditional balance sheet, such as brand reputation, customer loyalty, and proprietary know-how.
• Understand Multi-Method Valuation as brokers use specialized approaches—like the Relief from Royalty or Income Approach—to quantify what “goodwill” is actually worth in dollars.
• Recognize the Shift to Knowledge-Based Value, where intangible assets now often represent the majority of a company’s total purchase price, especially in tech and service sectors.
• Protect Your Intellectual Property (IP) early; having secured trademarks and patents significantly reduces buyer risk and justifies higher acquisition multiples.
• Enhance Intangibles Before Selling by auditing your brand perception and recurring revenue models, as these demonstrate “future-proof” stability to potential acquirers.

All companies have assets, such as their property, products and inventory, or employees.  But what about their intangible assets, and how do intangible assets impact the value of a company that the owner wants to sell?

An intangible asset is an asset that isn’t physical in any way, something you can’t touch or feel. What an intangible asset does have – and examples include a company’s brand recognition or its reputation within its niche vertical – is a current and future value that adds to the company’s appeal when the owner is ready to sell the business.

Tangible assets are physical items with a finite monetary value and play a crucial role in a company’s operations, and examples can include:

• Land
• Property the company owns
• Machinery
• and inventory

These assets are essential for a company’s financial health and for making informed financial decisions, and they provide physical resources that support the company’s enhanced financial stability.

However, intangible assets have a lot of value as well, and understanding their importance is key to determining if those assets will benefit the sale of your business.

Types of Intangible Assets

A professional business broker will understand the value of intangible assets, so if you are planning to sell your business, it’s wise to speak to an experienced business broker first, before you attempt to determine the proper valuation for your business.

A broker will be able to explain intangible assets’ value and the different types of Intangible Assets. Some of the common types of Intangible assets include:

• Goodwill, or the business reputation of a company
• Franchise Agreements, a type of intangible asset that grants the legal right to a business to operate using your company’s name to sell your products
• Patents, which give businesses the exclusive right to manufacture, sell or use a specific item
• Copyrights, which provide an extensive right to reproduce and sell software, books, magazines, etc., to prevent others from reproducing or publishing a work of authorship.
• Trademarks, which legally prevent others from using a business name or other branding items such as a design or logo
• Licenses that permit the use of a trademark, patent, intellectual property, or copyright in exchange for a fee or charge, and can apply to a technology transfer, franchising, and publication rights
• Broadcast Rights that allow a broadcasting organization to display or relay products on media such as television or the internet
• Government Grants, an essential form of intangible asset, where the government provides different kinds of grants or financial assistance to companies to encourage economic development in a specific region.
• Internet Domain Names that help to build brand equity through ownership or control of a popular name on the web, useful as well in customer relationships once that domain name becomes well-known and widely recognized.

Impact on Valuation

It isn’t just tangible assets that will impact a company’s value. The role of intangibles in a company’s worth can be very high, especially using intangible asset valuation methods that cover important assets such as intellectual property, brand equity, and market position.

Intangible assets help drive shareholder value by providing intellectual capital. This is key to a company’s long-term success and contributes to a company’s earning power and competitive edge. Benefits of intangible assets include:

• Creating value
• Driving sales growth
• Creating efficiencies
• Boosting pricing power
• Expanding profitability

Intangible assets can affect company value, which is extremely important when doing a valuation of the business you want to sell. Valuing intangible assets during this process involves several methods. Each one comes with both benefits and challenges, but overall, reviewing your intangible assets during a valuation will demonstrate your market position as a factor in setting the right price. The more intangible assets you have, the more appealing your business will be to a buyer and the higher your valuation.

There is some subjectivity in a valuation like this. The value of intangible assets can be highly subjective. Market trends, shifts in the economy, and advancements in technology can impact those assets, making it more challenging to be valuing intangible assets.

Assessing the Value of Intangible Assets

What is intangible value? Valuing intangibles can often be more challenging than giving value to tangible items. That’s why you should work with an experienced business broker who understands valuation intangibles and how to determine the value of intangibles.

Intangible assets can be valued through several methods. The key terminology of each includes:

• Relief from Royalty Method, which estimates value based on the royalties that the business saves from owning rather than licensing an asset.
• Market Approach Method, which compares the intangible asset to related assets that have already been sold on the market by other businesses. 
• Income Approach Method, which looks at the projected future income this asset will generate. 
• Cost Approach Method, which reviews the costs a business will incur to create or replace the intangible asset. 
• Calculated Intangible Value Method, which gets an intangible asset value by subtracting a company’s book value from its market value. 

These are the Best Practices for Intangible Asset Valuation, and these methods offer different and unique perspectives on how to assess the value of intangible assets, giving a seller and the broker a clearer sense of the company’s overall strengths.

Since Intangible assets play a vital role in determining a company’s overall value, valuing intangible assets ensures fair pricing during mergers and acquisitions, and helps in protecting intellectual property and measuring brand equity.

Strategies for Business Leaders

How do you go about enhancing Intangible Assets Value before starting the valuation process or the sale of your business?

To enhance the value of intangible assets, businesses have numerous proven options to consider. They include:

• Auditing your intellectual capital
• Starting and frequently reviewing an intangible portfolio
• Surveying customers annually on your brand perception

Consistently aiming to build up your intangible assets will give you much more long-term success, including the benefits of:

• A powerful and recognizable brand name
• Relevance in your niche
• A reputation for innovation

This is also about aligning your business strategy with intangibles. There are several strategies for doing that. You want to consistently invest in the most authentic brand possible, one that focuses on building customer trust and loyalty. You want a long-term strategy that provides a roadmap for taking maximum advantage of your assets, both tangible and intangible. Implementing these strategies will drive growth and help give your company a competitive advantage.

Conclusion

The future of company valuation is bright in this technologically advanced age, but will most likely be influenced by emerging trends and innovations shaping the market. In recent years, one of the most significant has been that intangible assets are almost certainly going to be playing a much bigger role. Part of that is in the way our economy has made a significant shift toward knowledge-based industries. That has made intangible assets far more central to business valuations, including assets such as:

•         Intellectual property
•         Brand equity
•         Customer relationships boosted through brand recognition

Other factors will impact how intangible assets affect company value and the impact of intangible assets on business valuation. That includes the rising preference for Recurring Revenue Models through subscription-based services, which are now helping companies fetch higher valuations, and the impact of Technology and Automation. AI is becoming a necessity for companies that want to start achieving higher business valuations, since digital transformations are viewed as being more innovative and scalable.

If you’re ready to sell your business, start this important process by reaching out to the professional business brokers at Website Closers. After a free opening evaluation, our brokers can guide you to the best valuation approach before setting a price for your business that is competitive in today’s market. Is an intangible asset valuation the right one for you? Call us and find out today. Your business will be in good hands during the sales journey.

Final Thoughts:

At Website Closers, it’s imperative that our brokers always make the sale, negotiations, and final transaction work properly for both buyer and seller. Once your eCommerce is under contract, you can be certain that we will have the information needed for the closing and ownership transition.

Selling an eCommerce business is the same as selling any other type of business – it gets easier if you have the right talent on your side.