Intangible asset

Intangible assets are defined as assets that are not physical in nature. For example the building that a business owns is a tangible asset because it can be valued and sold for a specific sum of money.

The most common form of intangible asset is called Goodwill. This is the customer base that the business has built up and is the principal reason that a business might sell for more than the value of the tangible assets.

However the value of Goodwill is very difficult to assess especially in cases where personal contact is important. For example an accountant who sells his practice would not be able to guarantee that all of his clients would transfer to the buyer.

When purchasing a business of this nature it is very important to be sure that provisions are made for an adjustment in the sales price after an initial trial period to see if the client base has eroded.