Knowing how to calculate your total available assets is very important for small business owners. Your assets add value to your business, and, without them, your business wouldn’t be able to survive. Everything from your office building to office supplies like pens and paper helps you run your business and contribute to revenue generation.
There are plenty of reasons you might want to calculate your total assets. For example, if you’re applying for a business loan, your lender might want to know the total value of the assets on your balance sheet.
When I ran my small business as a freelance writer, I constantly looked at my books. I wanted to know how much cash I had on hand, whether I’d saved enough for new laptops, as well as put money aside for taxes.
By determining the total value of your assets, you’ll know how much money your business can raise through the sale of assets if times get tough.
Fortunately, learning how to calculate your total available assets isn’t too difficult. Let’s take a look at what assets are, how to record your assets, and how to calculate their value.
What Are Assets? What Are Total Available Assets?
Your assets are a major piece of your business’ financial picture, but what exactly are assets?
Essentially, assets are anything that you own that adds value to your company. Some assets are tangible, like an office building or business equipment, while some assets are intangible, like accounts receivable or business investments.
Keeping track of and calculating your assets is important as it helps you gain a complete understanding of your business’ financial wellbeing. They help determine how much your business is actually worth.
For example, if you were calculating your own personal net worth, you would take into account your personal assets, like your house or your car. These are things you could sell to make money if you needed to.
Similarly, when determining the total value of your business, you would need to account for all of your assets, from your office building to your office computers.
This information can be very useful when applying for a loan, taking out an insurance policy, or, knock on wood, if you have to liquidate your business due to bankruptcy.
What Are the Different Types of Assets?
Assets can fall into a variety of categories depending on your preferred method of keeping track of them.
Common assets categories include:
- Cash: This includes petty cash as well as all the cash in your business’ bank account.
- Accounts Receivable: These are your unpaid bills, which can be sold for financing.
- Liquid Assets: Liquid assets are anything that can be sold quickly for cash, like stocks.
- Fixed Assets: Fixed assets are assets that take longer to sell for cash, like real estate and office equipment.
- Intangible Assets: These are nonphysical assets, like stocks, bonds, royalties, etc.
- Tangible Assets: Tangible assets are all of your physical assets, like supplies, equipment, vehicles, and similar items.
Classifying assets based on shared qualities will make it easy to keep track of them. Basically, anything that can be converted to cash should be included in your asset inventory.
How Do You Record Assets on a Balance Sheet?
For the most part, you’ll want to divide your assets into two separate categories: current and long-term assets.
Current assets are assets that may be used or sold within a year. These are usually your liquid assets. For example, cash and accounts receivable would typically count as current assets.
Everything else counts as a long-term asset. If you own your office building, that’s a long-term asset. Vehicles and equipment would also be included in this category.
Once you divide your assets into current and long-term assets, you should record your assets on a balance sheet based on liquidity, or how easy it would be to sell the assets.
For current assets, cash is typically at the top of the balance sheet, followed by accounts receivable, short-term investments, inventory, etc.
For long-term assets, your office building might be at the top of the balance sheet, followed by other tangible assets, then intangible or fixed assets.
How Do You Calculate Your Total Available Assets?
Once you understand what assets are and how to categorize the, calculating your total available assets isn’t too difficult. It’s kind of like gathering up all your kids’ toys.
Certain assets, like cash and accounts receivable, will have clear values. However, other tangible assets, like company cars or real estate, might not have a specific value.
For these items, you can use the purchase price if the item was purchased recently. Otherwise, you can get a professional to appraise your property for a more accurate value.
Assuming you have already recorded all of your assets, all you have to do is look at the value of each asset on your balance sheet and add them all together. It’s that easy!
Once you’re done, you’ll have a clear understanding of what assets you own and how much value they add to your business.
Why Calculating Your Total Available Assets is Important
Why is calculating your total available assets important? Why bother putting in the effort?
Aside from the importance of understanding your business’ financial status, there are a number of situations in which knowing your total available assets may be necessary.
For example, you may need to know the total value of your assets if you:
- Are applying for a business loan
- Take out an insurance policy
- Need to put up collateral for a loan
- Have to file for bankruptcy
Additionally, knowing the total value of your assets tells you how much cash is tied up in your company. So, if you are having cash flow issues, you can see whether or not you should sell any of your assets to generate some extra cash for your business.
Moreover, if you’re getting ready to retire, you may decide to sell your business. In this case, adding up the value of your assets and subtracting your liabilities is a standard way of determining the value of your company before selling it.
Ultimately, learning how to calculate your total available assets will help prepare you for a variety of situations you might face as a business owner.
From your company’s bank account balance to your office equipment, it’s important to keep track of all of your business’ assets. Knowing how to calculate your total available assets is a great way to stay on top of your company’s finances and prepare for the future.
By following the tips mentioned above, you can learn how to record and calculate your assets quickly and easily.
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Additional Reading: What Is an Income Statement?