Do you know how to properly value your business? One key element of this is to understand what are your actual assets and how to value them. Assets, after all, provide a basis for the extension of credit, keep your cash flowing, and build a solid reputation for the company's future.
But, what is an asset? The complete answer may surprise you. Here is a short guide to finding all the gems in your company's holdings.
1. Tangible Assets
Assets do not include every single thing your business owns. Much of this owned property is more correctly termed as consumables. These are things that are used up — usually in less than a year — during the normal course of business. Consider things like office supplies, shipping materials, hand tools, raw materials, and repairs to the building.
Property that is expected to last more than a year and that you can actually touch is a tangible asset. This includes buildings, larger tools, vehicles, heavy equipment, machinery, and expensive office equipment. You'd do well to know the accurate value of tangible assets at all times in case you need to tap this as a source for opening a line of credit.
2. Intangible Assets
If it's property of value but you can't physically hold it, it could still be a useful asset. This surprising type of asset includes such varied aspects as your reputation, the knowledge base of employees or owners, and brand recognition. While these are not easily quantified and may not be able to be sold, they do add value to the company.
The trick to intangible asset valuation is not to be sentimental. Many business owners look back at all their blood, sweat, and tears in building the business and think that it should be worth a huge amount of money. Others discount this valuable part of the business. The best way to determine this is to work with a more objective third party such as an accountant or attorney.
3. Intellectual Property
Separate from intangible assets but somewhat linked are intellectual property (IP) items. IP often includes your registered logos or brand names, copyrights held, trademarks, patents, and formulas. Think of this category as items that are likely covered under copyright law within the U.S.
Intellectual property can be an important asset because, unlike intangibles, it can often be sold at a profit. You can sell those rights or that trademark if needed, but selling the reputation of your business can only really be done upon a sale of the entire entity.
When you know how to find the complete value of your business and to tap into it, you can better approach negotiations and work with both lenders and other business owners. Want to know more about your particular company's true assets? Start by consulting with an accountant experienced in your industry today.
To learn more, contact an accounting company.