Making Intangible Assets Work For Your Business
While intangible assets have no physical shape or size, they pack lots of power for your business. If you and your employees have worked hard to create trademarks, patents, or copyrights, for example, you can use these assets in several ways to grow your business or increase business profit.
In a recent article, CircleLegal discusses the value of intangible assetsto your business, but the article doesn't focus on specifics of how you can make intangibles work for your business.
Here are some ways you can turn those intangible assets into profits.
What are Intangible Assets?
- Technology, like technical manuals, engineering processes, computer software
- Customer relationships,
- Contracts, franchises, licenses, and permits
- Trained and competent workers (called workforce in place)
- Some intangible assets are intellectual property. That is, they are specifically created by individuals and protected by laws from being stolen. Examples of intellectual property are trademarks, service marks, copyrights, and patents.
- Customer relationships, including goodwill (the value of customer relationships),
- Trade secrets, brand recognition, and proprietary business processes ("the way we do things in this company")
- Marketing and advertising campaigns and materials
- Location-related assets like land, water, and mineral rights.
How to use intangible assets
Selling intangible assets. Some general intangibles, like business processes, can be packaged and sold. Create and sell a book on "the way we do things at XYZ company," with examples of how you did it. You don't have to give away all of your trade secrets, though.
Just those that can be translated into other types of businesses.
You can also sell a copyright. Musicians often sell a music copyright, but more often they license the rights. These licenses are called Creative Commons Licenses.
Use them to increase value in the sale of your business. Goodwill is an important asset in the sale of a business. In a business sale, particularly one in which you are selling the business as a going concern, goodwill is the difference between the fair market price or book value of all the business assets and the sale price.
Other general intangible assets and intellectual property may also be valued and included in the selling price of a business.
License or assign assets like patents, copyrights, and trademarks. If your business has patents or trademarks, you can license the patent rights to someone, who can produce products from them. You can receive royalties on a continuing basis and set up criteria for use of the products made from these assets.
You may also want to consider assigning an asset, as a permanent sale.
Amortize intangible assets. Amortization is a calculation which allows you to spread out the expense of an intangible asset over its useful life, instead of capitalizing it in just one year.
Amortization works like depreciation. Having expenses in several years allows you to reduce your business income during these years, thus reducing your business tax bill.
Under Section 197 of the Internal Revenue Code, the IRS designates certain intangible assets that can be amortized over 15 years, and other intangible assets which cannot be amortized. The complete list is on Section 197 Intangible Assets. Here is a list of Section 179 intangible assets.
Getting Help from an Intellectual Property Attorney
For most of these ways to use your intangible assets, you will need to hire a special attorney called an intellectual property lawyer, who can help you navigate the tricky world of selling and licensing.
Disclaimer: The information in this article, and on this site, is general in nature and is not intended to be tax or legal advice. Every business is unique, and intellectual property laws and regulations change frequently. Seek legal and tax advice before making decisions that might affect your business.