Business assets are the basic units of a company’s value. They cover various items, from cash and investments to accounts receivable, property, and equipment. Many types of businesses have different combinations of these assets, but all companies need them to function.
There are different kinds of business assets because of the various functions they serve. The main categories are:
- Liquid assets: These are resources that can be quickly converted into cash, like checking and savings accounts, marketable securities, and accounts receivable.
- Fixed assets: Physical property used in the business, like buildings, land, vehicles, and machinery.
- Intangible assets: Non-physical assets with value, like patents, copyrights, and goodwill.
Most businesses will have a mix of all three types of assets, but the proportion will vary depending on the business model. For example, a manufacturing company will have more fixed assets than a service company. Or a real estate developer will have more land and buildings than a retail store. In general, the business’s assets will depend on what the company does.
Let’s discuss each asset category in more detail, with examples of common assets in each category.
Liquid assets are essential for a business because they can be quickly converted into cash. This is important because companies need cash to pay their bills and profit. The main types of liquid assets are:
- checking and savings accounts
- money market accounts
- short-term investments
- accounts receivable
To take care of liquid assets, businesses should regularly monitor their accounts and investments to ensure they are healthy and growing. They should also have a plan for using their cash reserves in case of an emergency.
Fixed assets are physical property used in the business, like buildings, land, vehicles, and machinery. For example, if you’re looking at Manor Lakes homes for sale and ultimately make a purchase, that property will become a fixed asset of your company. These assets are important because they help businesses produce products or provide services. They also have the potential to appreciate over time. The main types of fixed assets are:
- real estate
To take care of fixed assets, businesses should track them through asset management software. This will help companies keep tabs on depreciation, maintenance, and repairs. Additionally, companies should ensure their fixed assets against loss or damage.
Intangible assets are non-physical assets that have value. They are essential because they can give a business a competitive advantage. The main types of intangible assets are:
- brand equity
To protect intangible assets, businesses should have a plan to prevent others from using them without permission. They should also keep track of their intangible assets and make sure they are being used in ways that add value to the business.
Goodwill is another type of intangible asset created when one company buys another. Goodwill is the difference between the market value of the business and the book value of its assets. It represents the value of things like the company’s reputation and customer base.
There are also different ways to classify assets. The two most common methods are:
Balance sheet classification: This is the method used in financial accounting. It classifies assets as either current assets or non-current assets.
Current assets are assets that will be turned into cash within one year. Non-current assets are anything else.
Classification by liquidity: This method looks at how easy it is to convert an asset into cash. It classifies assets as either liquid or illiquid.
Liquid assets can be quickly converted into cash, like checking and savings accounts. Illiquid assets are anything else, like real estate or vehicles.
Assets play a vital role in the business’s success in a way that they provide the resources and funds necessary to sustain its operations. Companies should, therefore, take care of their assets by monitoring and maintaining them regularly. Different companies will have different combinations of assets, depending on their needs. However, all businesses need liquid, fixed, and intangible assets.
If a business does not protect its assets, it risks losing them to competitors or creditors. This could lead to the downfall of the company. Therefore, businesses must understand their asset portfolio and take steps to safeguard their assets.
Businesses need to have a mix of different types of assets to function properly. Liquid assets are the most important type of asset because they can be quickly converted into cash. Fixed assets are important because they help businesses produce products or provide services. Intangible assets are important because they can give a business a competitive advantage. Goodwill is another type of asset created when one company buys another. To properly take care of business assets, it is vital to keep track of them and have a plan for their maintenance.