As an individual, you might have a pretty good idea of what your personal assets are. From the cash in your bank account to your paid-off car, knowing the value of your assets can help you make important decisions about budgeting and long-term planning.
The same is true for businesses, though the concept of assets for companies can be a bit broader than what you’re used to in your personal life.
What are assets in a business context? As you continue reading through this guide, we’ll review the assets definition, common examples, and best practices for managing them.
Assets definition
Assets are defined as anything of value that can provide economic benefit to those who use or own it. There are both personal and business assets, though, in this context, we’ll focus exclusively on assets from a business perspective.
Businesses report their assets on the balance sheet, providing a snapshot of their value at a certain point in time. These are resources that the business can use to produce income or increase the value of their organization.
As we’ll discuss below, the term “asset” isn’t exclusive to physical items of value like property or machinery. It also includes intangible assets like trademarks and intellectual property.
Importance of assets in business
No matter the industry, all businesses need some amount of assets to operate and grow. Aside from making the business more valuable on paper, assets are also necessary for businesses to maintain operations and generate income.
From the initial capital an owner will invest in getting their business off the ground to the real estate a multinational company might purchase to facilitate its expansion into new markets, assets are a critical resource to any level of business success.
They provide businesses with important financial stability, offering the necessary liquidity to meet obligations in the near term while fueling growth initiatives over the long term.
Types of Assets
Assets are commonly divided into a few main categories, which is how they will typically appear on the company’s balance sheet.
Current assets
Current assets, also known as short-term assets, are liquid resources or those that the business can use or turn into cash within a year. Some of the common examples of short-term assets include:
- Cash
- Cash equivalents
- Inventory
- Prepaid expenses
- Accounts receivable
Fixed assets
In contrast, fixed assets, or long-term assets, are resources that the business will use or own for longer than a year. This typically consists of things like:
- Land
- Buildings
- Equipment
- Vehicles
- Buildings
- Machinery
Intangible assets
Assets aren’t only physical items of value that you can touch and feel. This classification also extends to intangible items of value, like:
- Intellectual property
- Patents
- Trademarks
- Copyrights
- Customer lists
- Databases
- Goodwill
- Domain names
- Contracts
- Brand recognition
This can be a difficult concept to grasp at first. However, as long as it’s something that you own or possess and can gain economic benefit from in the present or future, it can be considered an asset.
Assets vs. Liabilities
Assets and liabilities are often mentioned in similar contexts, especially when it comes to business accounting and financial reporting.
It might be helpful to think of assets and liabilities as opposite terms. While assets are items that can provide economic benefits to users and owners, liabilities represent something that a person, business, or organization owes another entity.
In a business setting, common examples of liabilities include:
- Accounts payable
- Loans
- Tax obligations
- Accrued expenses
- Deferred revenue
Benefits of effective asset management
Businesses that maximize the value of their assets through effective management can enjoy the following benefits:
Optimal asset utilization
With proper asset management, businesses can ensure they’re using their resources efficiently. This means they’re getting a good return on their investment into the asset, improving overall business efficiency.
Maybe a business doesn’t have good visibility into the assets it owns and lets certain resources sit idle. Or, if assets get misplaced, the company might make a redundant purchase, ending up with two of the same machinery, equipment, etc.
Theft prevention
Current estimates are that businesses lose up to $50 billion a year in the United States from employee theft.
Certain companies may not be aware of the extent of this problem. However, those who are invested in effective asset management have a clear view of their assets to mitigate the risk of internal theft and the associated financial costs for replacements.
Whether through tagging systems, barcoding, or diligent asset inventory checks, businesses can avoid instances where employees walk off with company assets – either unknowingly or intentionally.
Extended asset life
Many assets have a defined useful life, like computers, software systems, machinery, and vehicles. Through regular wear and tear, certain assets will eventually break down and need to be replaced.
Proper asset management can help assets remain in good condition, thereby maximizing their lifetime and value. In turn, they need to be replaced less frequently, helping companies be more cost-effective. This might involve completing routine maintenance and proper storage and utilization to ensure assets are used as intended and not abused or overworked.
For instance, if a piece of machinery has recommended maintenance after 120 hours of use, overlooking this guideline could make it more likely for the machine to break down and malfunction, leading to operational disruptions, lost productivity, and other consequences.
Challenges of asset management
Though businesses can see meaningful benefits from proper asset management, this isn’t always a straightforward task. Here are some of the common roadblocks that businesses can face:
Poor visibility for remote teams
It can be challenging for remote or hybrid teams that are dispersed across various locations to effectively manage their assets.
Without day-to-day visibility and oversight of how employees are using and managing company assets, it can be harder for leaders to determine how efficiently they’re being utilized, whether they require maintenance, or if items have gone missing.
Asset maintenance vs. disposal
For assets that break down, require upgrades, or are ending their useful life, businesses might struggle with the decision to either invest in ongoing maintenance or dispose of it and start fresh.
Especially for high-ticket items, businesses may have a hard time deciding to get rid of the asset, with the feeling that they’re “wasting” money.
However, it’s not always worthwhile to continue putting money into a piece of equipment, machinery, software solution, or other asset that is obsolete or no longer achieving optimal performance.
Scalability
Finally, growing companies may find it increasingly difficult to manage assets appropriately. As the employee base expands, the company opens new offices, and acquires new equipment, machinery, patents, etc., teams may not be able to effectively keep tabs on all assets and ensure they’re being utilized and maintained properly.
In other words, managing all assets manually is not a scalable solution as the business continues to grow.
Best practices for managing assets in business
To get the most out of their assets, businesses must have a strategic plan in place to acquire, maintain, and dispose of their resources. Here’s a closer look at what asset management looks like for businesses:
Complete preventative maintenance
While it may sound counterintuitive at first, businesses can preserve asset value and save money over time by investing in preventative maintenance for machinery, equipment, and other physical assets.
Rather than waiting until an asset is broken and must be put out of commission, either permanently or temporarily, completing maintenance tasks on a set schedule can help assets remain in good condition and may even extend their useful life.
Regularly take inventory
For small businesses just starting out, it might be easy to list out all the assets the company owns. However, as the business scales, it’s easy to lose sight of the exact inventory of company-owned assets.
For this reason, teams should regularly take inventory of company assets, ensuring that nothing has been lost or misplaced, which can be costly for the organization to replace, depending on the asset. It also gives the company an opportunity to assess the condition of its assets and make maintenance or disposal decisions accordingly.
Use asset tracking and management systems
Increasingly, companies are using online asset tracking and management software to streamline asset management and gain enhanced visibility into asset performance and utilization.
Depending on the specific software program, teams can use the system to monitor the entire lifecycle, from acquiring a new resource to eventually disposing of it.
These systems may leverage automation and data analytics to eliminate the guesswork associated with asset management, like flagging when an asset is not at peak efficiency or performance based on historical data. Overall, these programs can help teams use assets more effectively throughout their useful life and enhance the efficiency of asset management procedures.
Streamline financial management
Keeping track of business finances and accounting systems isn’t an easy task. But, tools like BILL’s integrated financial operations platform help provide more visibility and control over financial operations.
From one central hub, teams can automate key financial workflows like invoicing, payments, and expense tracking for increased efficiency and productivity. With BILL, you can spend less time on tedious, repetitive task, and more time on the work that matters to you.
