Assets are items of value, such as property and equipment, which your company owns or leases in order to operate. They can also be a means of creating value in your business - for example, intellectual property, customer relations and goodwill.
Why are company assets important?
Assets are important as they can help you to:
- generate revenue
- increase your business' value
- facilitate the running of your business
You can sell or transfer assets, use them to lower your tax bill and increase the efficiency of your business.
A good understanding of the importance of assets can help you achieve potential savings. In some cases, for example, leasing assets (such as machinery, cars or furniture) may be cheaper than buying them outright.
You should look after your assets to help reduce risk to your business. For instance, maintaining production machinery can help protect your business from health and safety risks, inefficiency and lost working time.
Importance of tangible assets
Tangible assets are often an essential resource for small business. They are the fixed (ie physical) operating resources that your business uses over a long period, such as premises, property and equipment.
Fixed assets can represent a significant portion of the small business net worth captured on the balance sheet and are therefore important in the presentation of financial position. Some fixed assets depreciate – ie they reduce in value as they age. In accounting terms, depreciation allows businesses to pay for fixed assets over their expected lifetime, which helps recover the initial asset costs and can lead to tax savings. See depreciation of assets.
Role of assets in determining business value
Efficient management of fixed assets during their full lifecycle is vitally important, as errors can lead to an inaccurate valuation of your business or incorrect tax reporting. To make the most of your assets, you must record and value them accurately.
By maintaining accurate asset records on your company balance sheet, you can:
- show the profitability and the financial position of your business
- create accurate profit and loss reporting
- increase goodwill and positive attitudes towards your business
- assure shareholders and attract investors
If you are selling or closing your business, identifying assets and valuing them correctly will be vital in determining your business' net worth, whether for sale or bankruptcy purposes.