08 September 2023 | Published by Jodie Wilkinson
Whether you realise it or not, every business needs assets to operate. And when you’re starting a business, one of the most important decisions you can make is what assets your company should hold.
But, getting your head around the different types of assets and how to account for them can be difficult. Find out more about the specifics around business assets — including their various forms — and how valuable they really can be to small businesses.
A business or company asset is a tangible or intangible item that is of value to a business. This can include everything from equipment, physical cash, investments, buildings and even intellectual property owned by a business or intended primarily for business use. Essentially, an asset is anything that can be used to produce goods or services or fund operations.
Assets contribute to the bigger picture of your business's worth. And because of this, you’ll see them on the balance sheet — a financial statement that reports a company’s assets, liabilities and shareholder equity at a specific point in time — on your annual report.
There is a wide range of different asset categories that can sometimes be hard to wrap your head around. Some of the most common business assets you’ll find include:
A current asset is any asset you expect to use within the next 12 months and can be easily converted into cash.
Current assets examples can be anything from:
A fixed asset is an asset that has value over more than a year and can’t be converted into cash as easily.
Usually, fixed assets depreciate in value over time, and this should be accounted for on the balance sheet.
A fixed asset can be:
When discussing assets, you may hear people refer to some as ‘tangible’ or ‘intangible’. The primary difference between tangible and intangible assets lies in their physical presence and how they create value for a company.
In simple terms, a tangible asset is a physical asset that can be seen and touched. These include:
Tangible assets can depreciate over time to reflect their wear and tear, or their value may increase based on market conditions. For example, if you own a brick-and-mortar store like a restaurant or hairdressers, the value of your premises may fluctuate in line with property prices. They can also be sold to raise capital if needed. Tangible assets are typically easier to value because they often have a market price or can be valued based on physical characteristics and usefulness.
On the other hand, an intangible asset lacks physical presence but still has clear business value. These can include:
These assets can provide a long-term financial benefit: for instance, a patent can secure exclusive rights to a product or process for a number of years.
Because intangible assets are not physical, they don’t depreciate in the traditional sense, although their value can be gradually written off over time. Valuing intangible assets can be complex because it often involves estimates and assumptions, and there isn't always a clear market price.
Today, it would be extremely difficult, or even impossible, to run a business without having any tangible assets. However, they offer a multitude of advantages, empowering businesses to thrive and excel in various ways:
Depending on a business's specific needs and its financial capabilities, companies can acquire assets through various methods:
Tangible assets are generally subject to depreciation, which involves allocating their cost over their estimated useful life. Depreciation reduces the asset's value on the balance sheet and affects the company's net income and taxable income.
Intangible assets may be subject to amortisation, which is similar to depreciation but applies to assets with finite useful lives. Depreciation and amortisation expenses impact a company's financial statements by reducing reported net income.
Businesses can protect their assets by implementing comprehensive measures such as robust security systems, insurance coverage, and regular maintenance routines.
Physical assets should be safeguarded with locks, alarms, and video surveillance, while data protection measures should be implemented for intangible assets. Adequate insurance coverage helps mitigate risks, while proactive maintenance and risk management practices minimise potential damage or loss.
Business assets are a vital component of the everyday runnings of your business, and so are card machines. Whether you decide to opt for portable, countertop or mobile devices, our card machines for small businesses can help make payments more manageable.