Technically speaking, amortize means to “kill off” a loan. Harsh. For startup purpose, amortize means you write off a regular portion of an intangible asset’s cost over a fixed period. This is sort of the same thing as deprecation, but that refers to tangible assets.
Depreciation occurs because of the normal wear and tear that physical things go through over time. But when assets are intangible, assigning it a value and a length of usefulness as you would a more tangible asset can be tricky.
When you’re starting a business, amortization is important because you’ll have a bunch of costs upfront that you’ll want to deduct over the course of several years to spread out those tax breaks. This is especially helpful when you make a big purchase that you’ll use over the course of several years as a means of generating revenue.
For example, a patent might be an example of an asset you’d amortize based on the amount of research and effort that went into developing the patent itself.
I’m going to amortize this patent so I can spread out the cost of it over time.