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The Importance of Intangible Assets When Buying or Selling a Business
| Guest post by: Andrew Rogerson |
Article Overview: It is important to know what tangible and intangible assets are in business. Knowing the difference and examples of each can help you with your taxes and the transaction of buying or selling a business. Assets can also be a legal matter, in which case it is important to know about legal protection and how they can help you in any business transaction.
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Free Download - How to sell a business By Andrew Rogerson |
The Importance of Intangible Assets When Buying or Selling a Business
All businesses have two classes of
assets. They are either tangible or
intangible. A tangible asset is property
or something you can touch, for example a piece of land or a building. Other examples include a photocopier or desk
and chair and these are collectively called Fixtures, Furniture and
Equipment. Intangible assets cover a range
of items and include goodwill, covenants not to compete, trademarks and trade
names, licenses and permits and more. So
a good question at this point is “Why do I want to know this and why do I
care?”
The answer to the above question whether
you are a buyer or seller is that when you are buying or selling a business,
there are tax implications you need to know about. And this especially applies if you are the
seller as it will affect the amount of money you put in your pocket once the
business sells and eventually catches up with the buyer when they sell, plus
during their ownership of the business with the depreciation they are able to
take as a tax deduction.
The main point of this article is to simply
make buyers and sellers aware that there are tax consequences that flow from
buying or selling a business. If you own
a business and are considering selling, talk to your tax professional so you
understand what taxes you’ll need to allow for when the business closes escrow
and when they are due and payable. If
you are the buyer of the business, there are different tax implications for the
different allocations we mentioned above.
For example, a Covenant Not To Compete paid to the seller is generally
taxed at ordinary income. For the buyer,
they are able to write off this part of the purchase price for tax purposes generally
over a 15 year period.
Too much information? You bet.
Is it complicated? You bet. Is it important? If you own a business and want to know
approximately how much you’ll get to put in your pocket if you sell the
business and not waste a lot of time, unnecessary stress and money and then
walk away from a wonderful offer from a buyer because you don’t get to keep as
much of the purchase price as you thought you would; I think you’d want to
know.
Also, in a lot of cases you may need to
spend time to make sure some of the assets of the business are all in order
both from a tax perspective and also a legal perspective. If you own some patents, trademarks, trade
secrets, copyrights, architectural designs, recipes, engineering designs etc
but the right legal protection is not in place and you disclose these things to
a buyer who understands they are not legally protected, you may have literally
given it all away.
The above intangible assets often require
special legal protection. This legal
protection is best locked in place by talking with a qualified attorney who specializes
in intellectual property. For example, a
patent is a property right granted by the United States Patent and Trademark
Office and should be recorded on the books of your company. Making sure these assets are legally
protected is simply good business but it does take time, understanding what
needs to be done and buying the right help to ensure it’s all in order.
Andrew
Rogerson is a 5 time business owner who currently specializes in helping entrepreneurs
enter or exit owning and operating their own business. He’s also the author of four books on
business ownership. For more
information, visit Andrew’s website by finding it in google under Andrew Rogersonand order a copy of any of his books including Successfully Buy Your Business:
Expert Advice from a Business Broker or Successfully Sell Your Business: Expert
Advice from a Business Broker. Andrew is
a Sacramento Business Broker.
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About the Author: Andrew Rogerson RSS for Andrew's articles - Visit Andrew's website Andrew Rogerson is a 5-time business owner that loves helping entrepreneurs sell or buy a business. Andrew currently holds the Certified Business Intermediary (CBI) designation from the International Business Brokers Association (IBBA), the highest designation awarded by the IBBA. Andrew has also earned the Certified Business Broker (CBB) designation from the California Association of Business Brokers (CABB.) He holds a Certified Machinery and Equipment designation (CMEA) from the NEBB Institute and is a Certified Senior Business Analyst (CSBA) with the Society of Business Analysts. Andrew is a member of the Sacramento Metro Chamber of Commerce and past Chair of the Sacramento Chapter of the California Association of Business Brokers. Andrew is also the author on a series of four books: Successfully Sell Your Business, Successfully Buy Your Business, Successfully Buy Your Franchise and Successfully Start Your Business. For more information go to http://www.businesstransactionbooks.com Click here to visit Andrew's website   Successfully buy a business |
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