Intangible Assets: The 900 Pound Economic Guerrilla Seldom Found On Balance Sheets and Financial Statements!

Michael D. Moberly    September 17, 2012

Why aren’t more companies engaging their intangible assets on a routine basis through better management, stewardship, and oversight?  So what’s the problem? Where do the challenges lie?

In part, the problem begins with the following.  I am quite confident that when many readers of my blog participate in a business meeting, at say, the c-suite level, whether it’s a small to medium size firm or a large corporation, we’re similarly motivated, as intangible asset strategists, to look for the inevitable but, invisible ’900 pound intangible asset gorillas’ and wonder why they’re not routine action items on the agenda?   Circumstances like this consistently leave me to conclude intangibles are being overlooked, ignored, dismissed, and ultimately misguidedly assumed to not rise to c-suite and board attention levels.

Every company produces and possesses intangible assets. Unfortunately, few use or exploit these important and valuable assets as effectively as they could, even though they constitute most company’s primary source(s) of value and revenue, and ‘building blocks’ for growth and sustainability.

Isn’t it correct to assume talented, intelligent, and experienced management teams, boards, and investors would be naturally inclined to want to wring every last drop of value, revenue, and competitive advantage from their intangible assets which are readily at their disposal?

After all, engaging intangible assets is a relatively straightforward exercise, it’s certainly not overly intrusive, nor is it a necessarily expensive or time consuming task.  And, when executed correctly, it can likely lead to improvements in a company’s financial and competitive advantage health, mitigate risks to asset value erosion, competitive advantage undermining, asset misappropriation, and perhaps most importantly, add value to a company by creating additional sources of revenue, profitability, and sustainability.

I would be hard pressed to assess any company, regardless of its size, industry sector, or maturity, and not find internally produced intangible assets that the company possesses, and uses, less effectively or efficiently as they could.. In a significant percentage of instances, admittedly though, we do not know precisely what percentage, most company’s intangible assets actually deliver some value, some sources of revenue, and some competitive advantages.

How this all translates, at least to me, is that there are substantial numbers of management teams, boards, c-suites, and investors who fully recognize that conventional financial statements and balance sheets simply do not, in the present knowledge (intangible asset) driven global economy, provide a sufficiently complete or necessarily clear picture of a company’s overall (real) financial soundness.  Again, as noted many times here, a primary reason is that intangible assets are seldom, if ever reported on either, unless, they are combined and reported as ‘goodwill’.   More specifically, continued (singular) reliance on conventional financial statements and balance sheets as the only reliable testament of a company’s financial circumstance or its value falls short.

But, conventional financial reports (balance sheets) were not designed to capture (describe) the many and various qualitative aspects, vital signs, and indicators that we now know are directly related to businesses success, i.e., those found in a company’s intangibles (non-financials).  A significant part of the challenge lies in the fact that many companies and their management teams still behave and make decisions as if they did!

So, the fact that intangibles are not being reported on balance sheets or financial statements remains insufficient reasoning for continuing to dismiss or ignore their relevance, contributory value, or the integral role they play in most every company’s internal processes, procedures, practices, and business transactions.

So why is skepticism, reluctance, and uneasiness still so pervasive about how best to cross the economic (intangible asset) chasm that is so integral to the knowledge-based economy?  It certainly should not be linked to the misconception that tracking – monitoring non-financial aspects of company performance, i.e., its intangibles, is a time-resource luxury, only for the few. Rather, it’s truly become a strategic necessity and fiduciary imperative!

Conventional financial statements and balance sheets still have value and importance, figuratively speaking.  It’s not my intent here to advocate their disregard, because they do describe whether or not financial targets have been achieved, and, in that sense, remain a relevant measurement tool.

So, while my conversations with a cross section of management teams and boards, particularly in the small and mid-sized company arenas, reveal a general familiarity with intangibles, there’s little evidence that an extensive  appreciation exists how intangibles have literally become embedded and are integral to most company’s routine (business) operations, processes, and procedures or how they contribute to elevating (company) value, by delivering competitive advantages, and serve as key sources – contributors to revenue.

There is another, very timely and relevant, explanation why some management teams and boards are not as receptive as they should (could) be relative to learning more about and seeking opportunities to more effectively utilize, exploit, and convert their company’s intangibles. That explanation is, as the saying goes, ‘when you’re up to your hips in alligators, one may have forgotten the original goal was to drain the pond’.

So, I hear some management teams and boards say ‘please don’t bother us with presumed theoretical discussions about why we should pay more attention to intangible assets when our company ‘is up to its hips in alligators’ and fighting every day for its financial survival, ala, the recession.

Of course, my response is that intangible assets are certainly not a theoretical concept or worse, merely a new ‘buzz word’.  They’re real, integral, and irreversible foundations to the knowledge (intangible asset) based global economies.

The proverbial red line is that there is prudence aplenty in striking a better balance between the oversight, stewardship, and management of financials and non-financials.

Comments regarding my blog posts are encouraged and respected.  While visiting my blog I encourage you to browse other topics (posts) which may be relevant to your circumstance.  Either way,  I welcome your inquiry at  314-440-3593 or [email protected]

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