Unlocking Hidden Value: Understanding Intangible Assets in Business

Explore the economic value of intangible assets such as patents, trademarks, and customer loyalty. Learn to identify and build your company’s intangible assets.

In today’s business world, what you can’t see often matters more than what you can. Inventory sits on shelves and equipment hums in the background, while intangible assets deliver significant value, even though you don’t see or hear them.

Intangible assets such as intellectual property, brand recognition, and customer loyalty aren’t as easy to count as buildings and other tangible assets, but they provide a competitive advantage and drive future economic benefits. From the corner café’s loyal customer base to Apple’s iconic brand, these invisible assets influence financial statements and fuel long-term growth, even if they never appear on any loading docks.

For commerce merchants and entrepreneurs, understanding these non-physical assets isn’t just academic—it’s essential for proper valuation, financial reporting, and strategic planning. Below, explore what intangible assets are, and learn how to classify, value, and protect them.

What is an intangible asset?

An intangible asset is an identifiable non-monetary asset. Or, to put it another way, it is along-term asset that lacks physical substance but generates value over time. Unlike inventory or equipment, you can’t touch intangible assets, but you can feel their substantial impact on your business’s economic value.

Common examples include:

• Patents protecting your product innovations
• Trademarks safeguarding your brand identity
• Customer relationships built over the years
• Proprietary algorithms powering your ecommerce recommendations
• Brand recognition that drives customer preference

What is a tangible asset?

Tangible assets are physical items like buildings, machinery, and inventory that are classified as PPE (property, plant, and equipment) on balance sheets.

Types of intangible assets

Intangible assets fall into two main categories, each with distinct characteristics and accounting treatments.

1. Identifiable intangible assets

Identifiable intangible assets exist no matter which person or company owns them and can be separated from the company—bought, sold, or transferred independently. Many have indefinite lifespans, potentially lasting as long as the business itself.

Examples include:

• Patents for unique product designs
• Trademarks protecting your brand name
• Copyrights covering your content
• Broadcasting licenses
• Proprietary algorithms and data

Imagine you’re a fashion retailer with a patented manufacturing process. If you wish, you can sell this identifiable asset—your process—to another company without selling your brand or equipment, since it has value separate from the business itself.

2. Unidentifiable intangible assets

Unidentifiable intangible assets are unique because they cannot be separated or sold independently. These assets exist only in relation to a company as a whole.

Examples include:

• Goodwill
• Business reputation
• Client relationships
• Brand equity

A subscription box service’s customer relationships represent unidentifiable assets because they exist only in the context of the company’s operations.

How businesses acquire intangible assets

Companies build intangible assets through two primary methods: internal development and external acquisition.

1. Internal development

You create internal intangible assets through ongoing business operations. Here are some examples of internally developed intangible assets: 

• A cosmetics brand develops a loyal social media following
• A software company creates proprietary code
• A consulting firm builds expertise and methodologies
• A retailer cultivates customer goodwill through exceptional service

While valuable, these assets often can’t be recorded on balance sheets due to accounting standards that make it difficult to determine their fair value.

2. External acquisition

Alternatively, your business can purchase intangible assets from other entities. When Meta acquired Instagram for around $1 billion in 2012, it gained valuable intangible assets, including:

• The platform’s underlying technology
• Brand recognition
• User relationships
• Intellectual property rights

These acquired assets can be recorded on financial statements at their purchase cost, making them visible in ways that internally developed assets often aren’t.

Valuing intangible assets

Valuing what you can’t see presents obvious challenges. However, several methods help businesses quantify these important assets.

The general formula for estimating total intangible asset value is:

Intangible Assets Value = Market Value of Business - Net Tangible Assets Value

This calculation requires:

1. Determining your business’s market value
2. Calculating net tangible assets (tangible assets minus liabilities)
3. Subtracting the second figure from the first

Valuing goodwill

Goodwill—perhaps the most abstract intangible asset—becomes concrete during acquisitions. When one company purchases another for more than the fair market value of its identifiable assets minus liabilities, that premium represents goodwill:

Goodwill = Purchase Price - (Assets - Liabilities)

Amortization considerations

Many intangible assets with finite useful lives must be amortized—their cost is gradually written off over time. Using the straight-line method:

Amortization Expense = Initial Value / Lifespan

For example, a $100,000 patent with a 20-year lifespan would be amortized at $5,000 annually.

Financial disclosure requirements

Proper reporting of intangible assets is essential for regulatory compliance and investor transparency.

Only acquired intangible assets appear on balance sheets, listed under non-current assets. Internally developed assets generally can’t be assigned a reliable market value and therefore remain off financial statements.

For assets with a finite useful life, amortization expenses are recorded on the income statements. In contrast, assets with an indefinite useful life are not amortized; instead, they undergo annual impairment testing to ensure that their carrying value does not exceed their recoverable amount.

Legal protection strategies

The value of intangible assets depends largely on their legal protection. Businesses employ mechanisms to safeguard these critical resources:

1. Patents grant exclusive rights to inventions typically for 20 years
2. Trademarks protect brand identifiers like logos and slogans
3. Copyrights safeguard original creative works
4. Nondisclosure agreements preserve trade secrets
5. Licensing agreements allow controlled use by third parties
6. Noncompete agreements prevent competitive threats from former employees
7. Intellectual property laws provide legal frameworks for enforcement

For commerce merchants, these protections aren’t only legal formalities—they’re essential business tools that support competitive advantages and maintain asset value.

The strategic importance of intangible assets

For today’s commerce entrepreneurs, intangible assets often represent the primary source of competitive advantage. While competitors can replicate products, manufacturing processes, and even store layouts, they cannot easily duplicate your brand’s reputation, customer relationships, or proprietary knowledge.

Understanding, developing, and protecting these assets should be central to any business strategy. As commerce increasingly moves online, where physical assets matter less, the relative importance of intangibles only grows.

Intangible assets FAQ

What’s the difference between tangible and intangible assets?

Tangible assets such as buildings, equipment, and inventory have a physical form and clearly defined monetary value. Intangible assets, including patents, trademarks, goodwill, and brand recognition, lack physical form but still provide value.

Is real estate considered an intangible asset?

No, real estate, including buildings, offices, and land, is classified as a tangible asset.

How do accounting standards treat internally developed versus acquired intangible assets?

Accounting standards generally only allow acquired intangible assets to appear on balance sheets at their purchase cost. You don’t record internally developed assets because you expense their development costs as incurred, and because establishing fair market value is difficult.

Can intangible assets be depreciated like physical assets?

Intangible assets with finite useful lives are not depreciated but amortized or gradually written off over time. Assets with indefinite useful lives are not amortized but are tested annually for impairment.

What happens to intangible assets during a business acquisition?

During acquisitions, the purchasing company records identifiable intangible assets at fair market value. Any premium paid above the net value of identifiable assets is recorded as goodwill, an unidentifiable intangible asset.