This group of business assets is of increasing importance to business value creation. Here is the short list:
- Trademarks and service marks
- Non-compete agreements
- Website domain names
Trade marks and service marks are generally protected intellectual property. Businesses often seek their registration, such as the Federal trademarks issued by the US Patents and Trademarks office (USPTO).
Website domains are subject to domain registration rules. They often are a hotly contested commodity as businesses increasingly seek valuable online presence.
Non-compete agreements are enforced as commercial contracts that enable companies to operate in a protected market niche.
Intangible assets are sources of income
Importantly, these valuable intangibles can be licensed to others in exchange for a royalty income stream. Imagine the value of well known brands in generating business earnings. Customer recognition of some trademarks may be worth a fortune because it can generate additional income from their name while the rights to the company’s own products and services are protected.
In a business M & A transaction, such brand names are broken out into a group of intangible assets alongside business goodwill. During business valuation, each of these intangibles has a value assigned to them.
Business intangible assets may have a long life span
Historically, such intangibles were deemed to possess a limited life span. These days, business people recognize that trade name values actually grow over time. Thus, many trademarks may be seen as having an indefinite life. The earlier amortization rules do not seem to be appropriate for such assets.
Impairment test for handling intangible asset values
The Financial Accounting Standards Board (FASB) now provides for an impairment test when handling the marketing intangible asset values, similar to handling business goodwill.
What this means to you, is that the business intangible assets must be valued under the new rules. However, you do not need to write them off, unless the asset has a clearly defined life. This would be the case for term non-complete contracts which need to be amortized accordingly.