Amortization
Amortization is the paying off of debt over time by making scheduled payments agreed upon by the lender and borrower. In website deals, this occurs when seller financing is involved. As such, the debt balance is reduced over time.
In Internet business deals, amortization can also refer to the deduction of capital expenses over the life of an intangible asset such as a software patent. For example, if a company acquires a software patent for $1,000,000 and the patent is valid for 10 years, then the company could deduct $100,000 as an amortization expense each year. It is as if the patent is being consumed each year.
Amortization differs from depreciation. Depreciation applies to tangible assets such as real estate and equipment while amortization applies to intangible assets such as patents and copyrights.
Author: Kris Tabetando
Kris Tabetando provides mergers & acquisitions (M&A) advisory and brokerage services to Internet companies. He also partners with investors to acquire & manage Internet businesses.
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