What Qualifies As a Business Asset?
The more assets your business has, the more power you have on your financials. Whether liquid or illiquid, these holdings boost your positive cash flow, and this looks good to investors and lenders. You need to show that your operation is financially sound, and having a strong balance sheet is one way to do so. If you’re uncertain of what qualifies as an business asset, keep reading.
The Two Different Types
To understand what qualifies you must understand first that there are two different types that will be listed on your company’s balance sheet: current and non-current or long-term. These can also be classified as liquid and illiquid. Liquid means you can convert the holding into cash immediately. Illiquid means it will take some time to realize the cash value of the property. Both of these add value to your company, so it’s important to hold both.
Current or Liquid
A business asset such as your cash on hand is a current asset. Other forms of liquidity include the money in your business savings accounts, any credit lines you have available to you, your company credit cards, and anything else that can be translated into a cash instantly. In addition to this, anything that can be turned into a valuable profit within a year is also considered a current asset, and this might include your accounts receivables and the inventory you have on hand to sell or manufacture into a product for sale.
Long-term or Illiquid
Long-term holdings will be listed on your balance sheet as something that will provide your business value longer than one year. Your company’s equipment—provided you own it and are not leasing it—your operating facilities, company vehicles, any properties that you own outright are considered long-term business assets. Aside from providing your company with value over a year, the other reason these are termed illiquid is because it will take you some time to convert them into cash, i.e., you must sell them first.
A business asset increases the overall value of your company, so it’s important to have a nice balance of both current and long-term holdings. This provides you with a diverse access to cash flow in the event you need it, and it also shows potential investors that you have a strong foothold on your operations. When preparing your balance sheet, make certain you list all of your liquid and illiquid holdings, as this will present a true financial picture of your operation for both you and your financers.