Businesses do not function on one particular factor. No, instead it involves a combination of activities that help to keep operations running smoothly. Of all such activities and factors, assets and liabilities are considered to be the two fundamental pillars.
If you have accurate knowledge about these, you can manage business finance efficiently.
Today, we are looking into which assets can be termed as business assets and their overall effect on a business.
What are business assets?
Business assets comprise of all tangible and intangible belongings of a business. Tangible business assets include real or physical assets which belong to the company. Intangible assets include intellectual property rights like copyright, trademarks and goodwill.
These are the most essential assets of each and every business. Valuation of assets can be done differently based on who is looking at them and how you perceive them.
Why you should know the value of your business assets?
Valuation of your assets has a tremendous effect on your business’s goodwill and net worth. Therefore, it is important to know the significance of business assets and their effect on your organisation.
Some of which are discussed here-
Assets are classified as per their liquidity which means how much liquid cash they provide your business. All assets are included in your balance sheet which means your net asset value is reflected on it.
You may easily get current assets like receivables and inventory in cash. But, long term assets like buildings, properties, etc. are less likely to get liquidated or converted in cash for you.
As mentioned previously, there are different types of assets of which some experience depreciation in their value as time passes by. Now what is depreciation?
It refers to the reduction in the valuation of an asset over a period of time. For example, when a company purchases equipment, its value reduces every year which means that its re-sale value will be lesser than the actual price. Such assets are commonly referred to as depreciable assets.
This is a significant concept from a tax and book-keeping perspective. The main reason why you should be aware about the depreciated value of your asset is that it can bring you tax benefits. However, it is important to determine for which assets you gain these tax benefits.
Assets are distinguished mainly on the depreciation factor. There are different tax rules for different types of assets. For example, real estate assets like land and buildings do not experience any depreciation. This helps you to determine the overall cost of the asset.
In order to understand all the tax implications, you should have an accurate understanding about depreciation and how/when it is calculated.
Some assets have a simple depreciation calculation process while others are more complicated but you can always rely on your accounts department to take care of this. This is why you must hire experienced and trust-worthy employees who have good accounting knowledge and the skill to implement it practically.
Capital gains tax
When you sell certain assets (usually capital assets) to earn profits you are entitled to pay capital gains tax on that profit. This is one prominent reason why you should maintain your records. Besides, you can minimise your loses based on asset costs.
You should be aware about the fact that if you sell an asset within 18 months of its purchase then the capital gain is short-term. But, the rate increases if your association with asset is over the long-term. It thus, becomes imperative to keep proper records about which asset was purchased when and for how long.
Used as security for a business loan
Business is always in need for alternative finance but there are times when you do not wish to sell-off your assets. This is when your business’s asset value can be your trump card to gaining additional balance.
However, in such circumstances, you must get in touch with companies that offer you flexible financial loans and repayment options. This way, you do not have to sell all your assets and simultaneously get the additional capital your business requires.
Business assets have a specific value but this keeps on changing based on who/when it is being evaluated. If the asset is currently being used it will have a high value. But, if it is liquidated due to bankruptcy, debts or financial crisis then there are chances that you may get a lower value in return.
The ultimate trick is to maintain your business asset records right from the purchase date to calculating depreciation, repairs and maintenance costs on a timely basis.