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Understanding trade assets when purchasing a business

On Behalf of | Sep 1, 2023 | Business Law |

When considering investing in a business, it is important to comprehend the concept of trade assets. These assets play a significant role in the value and success of the business you want to buy.

Making informed decisions will give you a smoother transition into ownership since you have the big picture of the financials.

Tangible assets

Tangible trade assets can include machinery, equipment, inventory and even the physical space in which the business operates. The value of these assets varies by industry and company, and you will find the list of tangible assets on the balance sheet. These are long-term assets and are often subject to depreciation year after year. While tangible trade assets are usually easy to assess since they have a clear monetary value, depreciation makes a quick glance evaluation inaccurate for a long-term financial health assessment.

Intangible trade assets

Intangible trade assets do not have a physical presence, but they hold significant value. Intellectual property, such as patents, copyrights, brand reputation and trade secrets, can give a business a competitive edge. Trademarks and brand reputation develop customer recognition and loyalty, but brand presentation can also increase revenue by up to 33%. When acquiring a business, it is essential to research the legal protection and market value of these intangible assets. It can have an impact on the business’s value.

Both tangible and intangible assets can have a positive or negative impact on a business’s value. Do not underestimate how intangible assets will impact the current financial health of a business or the future revenue potential. Avoid the mistake of only looking at the current value of assets.