What You Need to Know About Business Assets
Business assets are items of value owned by a business. They can keep a company afloat and help maintain a healthy balance sheet. You can sell your assets during lean times or use them as collateral to secure funding to help you during expansions. The number of assets owned by a business is an indicator of how healthy the business is. Assets can be classified in three categories, tangible assets, intellectual property and intangible assets. You should have a combination of these three for your business to be successful.
As the name suggests, you can touch them and convert them to cash easily. These assets are highly liquid and cannot be consumed during the process of doing business. You use them in doing your business and they depreciate with time. They are often listed in the balance sheet as vehicle, office equipment, building and plant.
These are assets with no physical form. They are neither listed in the company’s balance sheet nor are they highly liquid. They add an intrinsic value to the business which makes a business highly valuable. Intangible assets include industry knowledge, good name recognition, company’s know how, and good will. These assets should be protected because if your business loses its reputation, you may be forced to sell your tangible assets to stay afloat.
Just like intangible assets, these assets have no physical form nor are they listed in the balance sheet. They are covered under copyright law to protect them from infringement and imitation. If any company infringes on your property right, you can file a civil suit against them for damages. They include patents, industry logos, brand names, trademarks, formulas, innovations and other creative communication.
Business assets valuation
Assets have value. The values vary based on the circumstance. A business asset may fetch more or less when sold depending on how and when you sell it. You will need an appraiser to appraise an asset and determine its value when you want to use it as collateral to secure funding. In cases of bankruptcy, business assets may be liquidated at a lower value than when it is sold to settle some business debts. Depreciation can also lower an asset value and it is usually charged as an expense on the company’s balance sheet. The most common method of valuing assets is the fair market value.
Depreciation of assets
The more an asset is used in business, the more its value goes down. Assets like machinery, company vehicles and office equipment depreciate over time. For book keeping purposes, depreciation is an expense because it lowers the asset value.
The use of assets as collateral to secure funding
You can use your business assets as security when applying for a loan. By giving out your asset as collateral, you give your bank or lender rights over the property and they can sell it in case you default on your loan repayment. Having an asset as security can help lower your interest rates and you will be regarded as a less risky borrower. An important note to keep in mind however is that you can only gain full right and control of the property once you pay off your loan in full.
Assets can be used to determine a company’s profitability
The way a company uses its assets to generate income can be used to judge how profitable it is. The net return on asset is a good measure for showing how a company puts its assets to use. Business assets are not important if they don’t add any value to the business.
Keeping records and protecting business assets
You should have all the information about your assets in a well organized manner. Details about the purchase date of an asset, the cost, depreciation value, repair and maintenance, appraisal on the cost and the salvage value should be included in the records. Always endeavor to protect your tangible assets from damage and theft so that you can save on maintenance and replacement costs. You can protect tangible property by insuring them and through physical asset management. Intangible assets can also be protected by filing your application with intellectual property office.
Business assets add value to a business. They are a good measure of how profitable a business is. They should be taken care of and protected at all times.
Call us today and let us help you determine how much your business assets are worth, and how you can use them to increase your credit worthiness.