For businesses, brand is arguably their most valuable asset. But should they treat branding costs like regular expenses…or as investments that appreciate over time?
What is capitalizing branding costs?
Capitalizing branding costs means recording them as an intangible asset that depreciates just like property and equipment. For clever CFOs, this opens the door to a host of financial perks:
What are the benefits of capitalizing branding costs?
Improved Financial Reporting
Like brand new technology, capitalized branding enhances financial statements. Suddenly, your balance sheet includes the value of logos, ad campaigns and websites – assets that generate revenue for years. But unlike tech that becomes obsolete, brand equity truly strengthens with age.
Stabilised Earnings
Thanks to amortization, capitalized branding also stabilizes earnings. Instead of boom-or-bust expenses, branding costs spread smoothly over the years – providing investors more consistent returns on their money. The uniformity of capitalization produces apples-to-apples comparisons. Competitors who expense branding appear less valuable than those who recognize it as an asset. This gives capitalizers an edge on Wall Street.
Tax Breaks
Last but not least, capitalization may qualify branding for tax breaks. Write-offs of amortization expenses decrease taxes, freeing more cash to pump up the brand. While accounting rules vary, branding costs that meet certain criteria – measurable life and benefit – can qualify as capitalizable assets. With proper guidance, capitalization allows businesses to leverage the equity in their most prized possession: their brand.
So which intangible assets can be capitalized?
1. Logo design: A logo is like a special picture or symbol that a company uses to make it easy for people to recognize their products or services. The cost of designing a logo can be spread out over several years.
2. Advertising campaigns: An advertising campaign is like a special set of ads that a company uses to make people want to buy their products or services. The cost of creating an advertising campaign can also be spread out over several years.
3. Packaging design: Packaging is like the special box or container that a company uses to put their products in. The design of the packaging can be a branding asset if it makes people recognize and remember the company. Packaging design costs can also be spread out over several years.
4. Trademarks and trade names: A trademark or trade name is like a special word or symbol that a company uses to make it easy to recognize their products or services. The cost of registering and protecting a trademark or trade name can also be spread out over several years.
5. Website design: A website is like a special place on the internet where people can go to learn about a company and their products or services. The design of the website can be a branding asset if it makes people recognize and remember the company. The cost of designing the website can also be spread out over several years.
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