When you started your business, you may have bought computers, office furniture, or other equipment necessary for running your company. But you probably haven’t given much thought to these business assets since.
You might not realize it, but your physical assets make up what might be a sizable portion of the value of your company. For example, could you do your work without your desktop computer or manufacturing equipment? Probably not. That’s why you must ensure that you manage assets the right way. Here are some of the tips on how you can manage your assets properly.
Identify your assets
Knowing what assets you have, as well as their value, is key. Make a list of any and all things you own, which includes office equipment, furniture, computers, special technology, company vehicles, fixtures, and buildings you own.
Assign Value to Them
Once you have a list of your assets, determine their value. This isn’t what you initially paid for them because assets depreciate. To determine the market value of these physical assets, look for similar products (about the same age) for sale in your area (eBay is a good place to start). This isn’t an exact science but will give you a ballpark figure of what they’re worth, which will be useful later if you want to take out financing.
Record Your Business Assets
Now that you’ve assigned value to your assets, list them on your balance sheet. Most accounting software will walk you through the process, or you can get help from a professional accountant.
Realize that your balance sheet is just a snapshot in time, as your assets may change (especially cash and inventory) and depreciate. You’ll need to plan to update your balance sheet as assets depreciate or change significantly.
Because these assets are key to the operation of your business, you need to insure them. Business property insurance will cover replacements should any equipment be stolen or ruined due to acts of nature (flood, fire, etc.). And if you use business vehicles, you need auto insurance. Yes, these are added costs when your budget is already tight, but consider how you’d fare without insurance if something went wrong. Better safe than sorry.
Understand your taxes
An investment in an asset is a business expense, so it will reduce your taxable income. However, rather than claiming the full, say, $50,000 you paid for a large piece of equipment in one year on your taxes, you can claim part of that for several years, depreciating its value over time. This way, you get a similar tax break for years, rather than a huge one, and then no benefit after that.
Let’s say your business brings in $200,000, and you spent $50,000 on equipment. By amortizing the value of that equipment over five years, you reduce your taxable income by $10,000 for those five years and are taxed on $190,000 rather than $200,000. It might not seem like much, but it can offer some tax savings.