Have you ever wondered how healthy your business is financially? Well, one key indicator is your total assets. They represent everything your company owns that has value. It is not just the cash in your register or the inventory on your shelves, although those things are important.
Total assets encompass a wider range of valuables, from physical equipment to intangible property rights. Knowing this number is crucial for effective financial management. Here is how you can calculate it in 6 steps:
Gather Your Financial Statements:
In order to calculate total assets, you will need up-to-date versions of three key statements: balance sheet, income statement, and cash flow statement. These can be found in your accounting software or created by your accountant. Double-check for accuracy and completeness.
Identify Your Tangible Assets
Tangible assets are the physical, touchable things your business owns. This includes equipment like computers and machinery, the inventory of products you sell, or even the building you operate out of.
To get an accurate picture of your total assets, you will need to value these tangible assets. Here’s what to consider:
• Equipment and Machinery: Do not just use the original purchase price. Instead, research the current market value of similar equipment to get a more accurate picture of its current worth.
• Inventory: The value of your inventory lies in how much it would cost to replace the items you have on hand. This gives you a realistic idea of the amount of money you could convert these assets into if needed.
• Property: Estimating the market value of your property is important. Research similar properties in your area to get a good starting point.
Later on, we will separate these into Current Assets and Fixed Assets.
Value Your Intangible Assets
Though not physical objects, intangible assets can be of significant worth, especially in knowledge-based industries. These assets represent the intellectual property you have developed and your positive reputation with your customers. There are two main types of intangible assets.
Intellectual Property
Patents and trademarks are prime examples of intangible assets. These legal protections safeguard your unique ideas and creations, like inventions or distinctive logos. Their value depends heavily on market demand. A patent for a revolutionary product in high demand will hold much more value than one for a niche invention.
Customer Goodwill
This intangible asset encompasses your positive reputation and the loyalty of your customer base. While assigning a specific dollar amount can be challenging, strong customer goodwill is undeniably valuable. It translates to repeat business, positive word-of-mouth marketing, and a competitive edge in the market.
Calculate Current Assets
Current assets are the things you can easily convert into cash within a year. They ensure smooth cash flow and the ability to cover your day-to-day operations. Below is the breakdown of the key players in this category:
• Cash: This is your most liquid asset, readily available for immediate needs like paying bills or covering unexpected expenses.
• Accounts Receivable: This represents money owed to you by customers who still need to pay for their purchases. Remember that an account receivable is not immediate cash; collecting this money is necessary for maintaining a healthy cash flow.
• Inventory: We touched on this earlier, but it is worth reiterating. Inventory refers to the stock of products on hand, ready to be sold. The key here is that this inventory needs to be readily saleable. Products sitting on shelves for months collecting dust are not valuable assets. Effective inventory management ensures you have enough stock to meet customer demand without tying up too much cash in unsold items.
Add Up Fixed Assets
Fixed assets are the essential tools and infrastructure that form the bedrock of your business. Unlike current assets, they are not easily converted into cash. Here are some key examples of fixed assets:
• Buildings: This includes your office space, warehouses, or any other property your business owns.
• Machinery: This encompasses all the equipment needed to produce your goods or services, like manufacturing equipment, computers, or specialized tools.
• Vehicles: These are essential for transportation and deliveries, ensuring your products or services reach your customers.
When it comes to valuing your fixed assets, there are three main approaches to consider:
1. Historical Cost: This simply refers to the original purchase price you paid for the asset.
2. Market Value: This estimates the current market value of a similar asset. Researching similar properties or equipment in your area can help determine this.
3. Depreciation: Depreciation, the decrease in value due to wear and tear, will affect the value of your tangible assets over time. Factor this in when calculating their worth.
Putting it All Together
Now for the exciting part: adding it all up! Your total assets are a grand total for everything your business owns that has value. To get this number, simply add up the values that you calculated in steps 3 through 5 above.
Why is this important? Your total assets act like a benchmark. They help you track your progress over time and make smart decisions about your business. Knowing your total asset value can help you figure out how much you can invest in growth, how much debt is manageable, and overall, how strong your business foundation is.
Key Takeaways
This guide has explored the world of business assets. Following these six simple steps, you can calculate your total assets to gain valuable insights into your company’s financial health.
How FINSYNC Can Help
There are 3 primary ways FINSYNC helps business owners. (1) CO.STARTERS courses through FINSYNC can help turn your business idea or side hustle into a thriving business. (2) On our website, you can also apply for a business bank account. (3) In addition, the FINSYNC software allows you to run your business on One Platform – invoice customers, pay bills, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.