Asset management may seem difficult at times because it requires you to take some hard investment decisions, but if you carry out this exercise diligently every year, your portfolio is likely to deliver superior returns than if it were left unchanged. Investors tend to accumulate investments that do not really suit their needs. It is important that you identify and throw out the laggards in your portfolio.
Identify Your Assets
Knowing what assets you have, as well as their value, is key. The first step is to identify your assets, including real estate, 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. 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. 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.
Protect Them
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 Assets and 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.
Figure Out Your Depreciation Schedule
So how do you know what kind of depreciation deduction you can take for your business assets? The IRS says you must write off the depreciation over the useful life of the asset. Once that asset isn’t used, you can’t continue to write it off.
Leverage Your Assets in Valuing Your Business
Your assets can play a significant role in obtaining funding, selling your business, or securing a loan. Several factors contribute to your business's overall value, such as your revenues, trademarks, patents, cash, and assets. For example, suppose you own an ice cream shop with a high-end ice cream-making machine and patented recipes. In that case, your business's value will be greater than the shop down the street that uses low-cost machinery and generic recipes found online. Knowing the value of your assets can help you leverage them to enhance the overall worth of your business.
Sell Assets the Right Way
If you ever need to sell certain assets, whether to upgrade to better ones or liquidate your business, it's crucial to do so correctly. First, determine the current value of each asset, as they can depreciate over time. If you're uncertain of their value, consider getting a professional appraisal to ensure you set an appropriate price. This will help you make the most of your assets and ensure a successful sale.
