Business assets

Business assets are items of value that your business owns, creates or benefits from. Assets can range from cash, raw materials and stock, to office equipment, buildings and intellectual property.

What is an asset in business?

An asset, in business terms, is a resource of value that you own or lease that helps you run your business. These can be tangible items such as computers and petty cash, or non-physical things such as goodwill, reputation and brand.

Assets, in accounting terms, are resources that you can sell or convert into cash or use to produce value. For example, your inventory, bank balances, accounts receivable, prepaid expenses, etc.

Assets accounts are an important factor in your business' balance sheet. Depending on how you look at them, assets can fall into different categories.

Categories of business assets

You can generally categorise assets according to their nature and type. Based on their convertibility into cash, you can classify assets as either:

• current assets - those with a shorter life span and easily transferable into cash
• fixed assets - intended for long-term use and unlikely to convert quickly into cash

Another way of grouping business assets is according to their physical characteristics. Under this approach, you can distinguish between:

• tangible assets - the physical, material and financial resources of your business
• intangible assets - resources without material substance, but with clear business value

You can also label business assets as either operating on non-operating based on their usage.

List and examples of business assets

For a successful business, you should ideally own a combination of current, tangible and intangible assets to secure a good cash flow, effective processes and long-term value. See more on the importance of assets in business.

Tangible assets are any assets in your business that have a physical form. They comprise both fixed assets such as machinery, building and land, and current assets such as inventory and cash.

What are tangible assets?

Tangible business assets are items with a clear purchase value that your business uses to operate, produce goods and services, or create profit. Tangible assets can be short-term or long-term. They generally fall under two main categories:

• financial capital
• physical equipment, systems and infrastructure

Examples of tangible assets may include:

• cash and cash equivalents
• your business premises, property or land
• company vehicles
• machinery and equipment
• IT equipment
• investments
• any payments owed to you
• stock-in-hand and the value of any confirmed orders

Businesses can also have non-physical assets such as goodwill, brand and intellectual property. These are known as intangible assets.

Tangible asset valuation

Tangible assets are the backbone of your company. They represent much of your company's worth but are generally not for sale to customers. You can use tangible assets:

• to provide goods or services
• to contribute to your business' cashflow
• to raise cash in case of emergencies
• to meet your business objectives and goals
• as collateral for loans

Find out more about business asset valuation.

Managing tangible assets

To make the most of them, you should track and manage all tangible assets in your business. For accounting purposes, you should record all fixed assets on your balance sheet. Certain assets may decrease in value over time and you may be able to depreciate them - ie allocate their cost over their useful lifespan. See more on depreciation of assets.

An efficient inventory and assets management system will allow you to track the location, quantity, condition and maintenance needs of your tangible assets. It may also help deter theft of your assets. See more on managing assets in business.

As well as theft, your tangible assets may also potentially be at risks of loss or damage. You may need to consider insuring your assets or putting certain precautionary measures in place. Find out more about protecting business assets.

Intangible assets are valuable resources that belong to your business but, unlike tangible assets, they are not in a physical form. They include goodwill, intellectual property, customer relationships, etc.

What are intangible assets?

The main characteristic of an intangible asset is that it lacks physical substance. You cannot touch it or see it. They are generally long-term and derive their value from your business' intellectual or legal rights.

Examples of intangible assets can include:

• your reputation
• brand
• skills and knowledge
• trade secrets
• secret formulas or processes
• research findings
• intellectual property (patents, designs, copyright and trade marks)
• employee, customer and supplier relationships
• goodwill
• contracts
• franchise rights
• licence rights
• domain names
• proprietary software and processes
• skilled and competent workforce

You can create intangible assets through:

• contracts (service agreements, lease agreements, use rights, etc)
• technology (patents, software, secret recipes, etc)
• customers (customer lists and databases, open orders, production backlogs, etc)
• marketing (trade marks, domain names, brand perception, etc)

Intangible asset valuation

Because they lack physical properties, intangible assets are often difficult to keep track of and measure. However, they can add significant commercial value to your business and often form the basis of a business' competitive advantage.

For valuation and accounting purposes, you should only list intangible assets on your company's balance sheet if:

• you have acquired them for a price
• they have an identifiable value
• they have a useful lifespan

In this case, they should appear on your company's balance sheet as long-term assets valued according to their purchase price and - if applicable - amortisation or depreciation schedule. See more on depreciation of assets.

Assets that you have developed internally often don't have reportable costs and, as such, you should not list them on your company's balance sheet. Find out more about business asset valuation.

Managing intangible assets

Although some intangible assets may not appear on the balance sheet, it is worth taking stock of all your resources and finding an effective way of managing them. See more on managing assets in business.

In business terms, assets and liabilities often appear together. They are the two fundamental elements that shape the financial health of your business and make up your company' balance sheet.

What are assets?

Assets are resources (tangible and intangible) that your business owns, and that can provide you with future economic benefit. They add value to your business, they can help you meet your commitments and increase your equity.

See different types of business assets.

What are liabilities?

Liabilities are your business' debts or obligations which you need to fulfil in the future. This is the money you need to repay, the goods you need to provide or the services you need to perform. These responsibilities arise out of past transactions and need to be settled through the company's assets.

Both assets and liabilities are reported on the company's balance sheet. While some assets are depreciable, liabilities are not - they do not diminish in value over time. See more on depreciation of assets.

Examples of assets and liabilities

Similarly to business assets, there are two broad categories of liabilities. Depending on their maturity, liabilities can be either current or non-current.

Current liabilities are those due within the present accounting year, such as:

• bank overdrafts
• accounts payable, eg payments to your suppliers
• sales taxes
• payroll taxes
• income taxes
• wages
• short term loans
• outstanding expenses

Non-current liabilities are those financial obligations that are not due for settlement within one year during the normal course of business. Also known as long-term liabilities, they include:

• bonds payable
• capital leases
• mortgage debt
• long-term borrowing
• pension liabilities
• deferred revenues and taxes
• securities, such as stock shares or bonds
• notes payable

In the balance sheet, you need to take in consideration both your assets and your liabilities to accurately reflect your business' financial position. See more on balance sheets.

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.

See different types of business assets.

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.

Safeguarding intangible assets, such as your patents or trade marks, can help protect your business against infringement. Find out how to protect your business assets.

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.

See more on business asset valuation and managing assets in business.

Asset valuation is the process of determining the current value of a company's assets, such as stocks, buildings, equipment, brands, goodwill, etc. This process often happens as part of a wider business valuation, or before you buy, sell or insure an asset.

Asset-based valuation allows you to calculate a business's net worth by adding up the current value of its assets less the value of its liabilities.

How to value business assets?

The first step in asset valuation is to have a clear understanding of the different types of business assets that you own. Look at your resources and create an inventory detailing all your:

• current assets
• fixed assets
• intangible assets, including intellectual property (IP)

You should consider both your tangible and intangible assets, although it can help to evaluate different types of assets separately.

How to calculate the value of tangible assets?

The starting point for determining the value of tangible assets is the net book value (NBV), which is the value of the assets stated in the accounts. This method suits mainly stable businesses with significant tangible assets.

When valuing tangible assets, you can adjust the NBV figures to take into account economic realities such as:

• property or other fixed assets which have changed in value
• old assets or stock which would have to be sold at a discount
• bad debts to the business

The value of many kinds of tangible assets - like machinery and equipment - often depreciates over time due to wear and tear. You will need to consider this when valuing such assets. See more on depreciation of assets.

Besides age and usage, many other factors can affect the value of assets. One example is bankruptcy, where asset liquidation value will typically be lower than its fair market value.

How to calculate the value of intangible assets?

Intangible assets often give businesses their competitive advantage. However, because they have no physical characteristics, their value can be hard to determine.

A common way of valuing intangible assets, including IP but excluding goodwill, is by using either:

• market approach - based on market evidence of what third parties have paid for comparable intangible assets (in practice, this method can be difficult to apply)
• income approach - assumes that the value of an asset is the present value of future earnings from the asset
• cost approach - based on estimating the costs of constructing or acquiring a new intangible asset that is of more or less the same use as the existing one

These methods look at things like comparable transactions, excess earnings, relief from royalty, replacement or reproduction costs and simulation analysis.

You can generally determine the value of goodwill based on the calculation of a residual value, by subtracting the net value of assets from the value of equity of the business.

Unlike tangible assets, which depreciate over time, intangible assets (and intellectual property in particular) often increase in value with time. However, accountancy rules don't allow for such an increase in value to be included in the balance sheet. You should consider seeking professional advice or consult an accountant when valuing intangible assets.

Find out more about valuing your intellectual property.

Assets give your business significant value, so it makes sense to monitor and manage them with care. This applies to both tangible and intangible assets.

What is asset management?

Broadly defined, asset management is a blend of operational and financial processes and practices that can help you make the most out of your business assets. It involves looking after all the things that have actual or potential value to your business.

Asset management comprises:

• physical asset management, also known as enterprise asset management
• fixed asset management
• IT asset management
• digital asset management
• management of intangible assets, such as intellectual property

Business asset management is different from the financial asset management, which relates to people and companies that manage investments on behalf of others.

Asset lifecycle management

The focus in managing assets of any kind is not so much on the actual assets, but on the value that the particular asset delivers to the business over the whole of its lifecycle, from pre-purchase to disposal.

Asset lifecycle management seeks to optimise the profit you derive from your assets by minimising the cost of acquiring, operating, maintaining, renewing or disposing of assets.

Keeping a record of your assets

Most businesses manage their assets by keeping an up-to-date asset register. This is simply a record that clearly identifies all the fixed assets of a business. It allows you to quickly retrieve information on an asset, including:

• its description
• purchase date and price
• location
• accumulated depreciation
• estimated salvage value

A fixed asset register helps in tracking the correct value of the assets, which can be useful for tax purposes, as well as for managing and controlling the assets. You can create and manage the asset register yourself, or you can get your accountant to keep one for you.

Asset tracking software can help you to monitor and manage your inventory, maintain accurate records and calculate asset depreciation. If you want to sell or buy a business, a detailed asset register will be particularly important.

Asset management systems

The ISO 55000, ISO 55001 and ISO 55002 standards cover best practices in asset management. They specify the requirements for the establishment, implementation, maintenance and improvement of an effective asset management system within a business.

Why is asset management important?

Effective management of assets is important to almost any business, as it can reduce costs, boost productivity, improve your goods or services, and help you comply with regulatory obligations.

Asset lifecycle management can also help:

• reduce the cost of asset ownership
• prevent wastage and theft
• increase output while reducing operating costs
• reduce planned downtime
• improve the business' reputation among customers, regulators and suppliers
• improve workforce motivation and performance
• improve business processes

Find out how to protect your business assets.

To protect your business assets, you must first understand the risks facing them. For example, your financial and physical assets could be damaged by fire, flood or other types of disaster. They could also be subject to crime - eg stolen, misappropriated or hacked.

Your strategic information, commercially sensitive data and intangible assets (such as intellectual property) are also valuable - and therefore vulnerable to a range of threats.

How do you protect assets?

It's a good idea to begin managing risks to your assets by documenting what you own and mapping out potential threats and vulnerabilities against each asset. To reduce the risks, you should:

• keep a record of all assets - see different types of business assets
• carry out regular asset checks, including stock and inventory checks
• carry out a risk assessment for different types of assets
• restrict access to assets such as stock, cash or data, where appropriate
• put in place good risk management practices
• register and enforce your intellectual property rights
• comply with data protection legislation, including the General Data Protection Regulation (GDPR)
• apply protective security measures, where necessary
• conduct regular reviews of your asset and management practices
• develop contingency and business continuity plans

Find out what practical steps you can take to secure your business assets.

Insure your company's assets

Asset insurance can help you bounce back from unexpected problems and replace the cost of lost, stolen or damaged property. You can insure many types of assets, such as:

• business premises and property
• cash and credit
• business contents, such as stock, machinery and equipment
• IT systems (against cyber crime)
• goods in transit
• commercial vehicles

See more on insurance: business property and assets. In addition to insuring your assets, you can also take out different types of liability insurance.

How to protect intangible assets

Intangible company assets (such as reputation and knowledge) can be more difficult to insure and much more difficult to recover if lost or damaged. However, you can put in place policies to protect your business' intangible assets. Follow best practices in managing assets in business and protecting intellectual property.

Asset protection planning

Asset protection is about protecting your personal and business assets from the threat of business liabilities, such as debt obligations, claims of creditors, claims for damages, liability, etc. It uses legal strategies (eg corporations, partnerships and trusts) to deter potential claimants or help prevent seizure of assets after a judgement.

Read more about asset protection planning.

Most businesses will accumulate substantial assets over time. If you need to close or sell your business, you may want to offload your assets quickly. There are effectively two ways in which you can do this - through an 'asset sale' or a 'share sale'.

What is an asset sale?

An asset sale happens when you sell or transfer the assets of your company, rather than shares or stock. These assets can be tangible (eg machinery and inventory) or intangible (eg intellectual property).

In an asset sale, you can typically choose what you want to sell. For example, you may want to sell inventory and equipment, but keep the name of your business. You individually appraise and decide the selling price for the different assets on offer.

With asset sales, the liabilities typically stay with the existing businesses unless the buyer agrees otherwise.

Asset sale vs share sale

An asset sale is different from a share sale. In a share sale (sometimes known as a stock purchase), you sell the entire business, including all its assets, liabilities and obligations, to a new owner. Once the transaction is complete, the buyer assumes responsibility for the whole company.

Asset sales can happen as:

• a partial exit - when you transfer only the select assets (eg in a spin-off situation)
• a complete exit - when you transfer all desirable assets and liabilities to a buyer, unwind what is left and liquidate the business

In both situations, the process is easier if you keep clear and accurate records of all assets in your business. As well as good records, you will also need to bear in mind:

• asset depreciation - this will affect the asset's value and how much of it you can write-off
• tax implications - if you sell for a profit, you may have to pay Capital Gains Tax
• fair market value - the highest price an asset would sell for in the open market

See more on business asset valuation and managing assets in business.

Negotiating asset sale or transfer

If you are selling or transferring assets without selling the business, you will need to negotiate the terms and conditions and draw up an asset purchase agreement with the buyer. If you are selling the assets as part of the sale of your business, you will need a business purchase agreement.

For more information, see understanding contracts when buying or selling a business.

There are specific considerations for selling or assigning intellectual property rights. If the rights are registered, such as trade marks or patents, you may need to notify the Intellectual Property Office of the change in ownership. See more on selling your intellectual property and licencing your IP.

You should seek professional and legal advice about selling and transferring business assets, as well as advice from an accountant. See how an accountant can help your business.

Disposal of assets

The disposal of fixed assets involves removing assets from the accounting records. This process is known as derecognition. Derecognition may require recording of a gain or loss on the sale, exchange or transfer of the asset when the disposal occurs. Find out how to record the disposal of assets.

Tax implications when you sell or transfer business assets

When you sell or transfer a business asset, you sell it for more - or less - than you originally paid it for. In either case, tax implications may arise out of your capital gain - or loss. See more on corporation tax when you see business assets and capital allowances when you sell an asset.