Assets are the resources of financial value to a business entity. Every small business must calculate its support to make sure it can repay its debts to maintain business’s financial health.
The value of business assets must be open to a potential lender to estimate the support needed to guarantee loan dealing. In this article, we will guide you step-by-step on how to calculate small business assets.
This article covers:
- List-up assets
- Prepare a balance sheet
- Add-up the assets
- Basic accounting formula
- What to include in total assets
1. List-up Assets:
To calculate the assets, you must know about them. You need to make a list of your valuable assets that can easily be converted into cash whenever required.
There are many assets types; these are:
- Fixed assets or tangible assets ( machinery, buildings)
- Intangible assets or non-physical assets (business reputation, copyrights, brands, etc.)
- Other assets (liquid assets, current, and noncurrent assets, long-term assets, and short-term assets)
List of assets in a small business:
- Vehicles
- Real estate (buildings etc.)
- Lease agreements and money spent to improve a leased space
- Inventory
- Investments that mature in less than 90 days (i.e., stocks, U.S. treasuries, bonds, mutual funds)
- Pre-paid insurance
- Intellectual property (i.e., know-how)
- Brand equity (recognition)
- Company reputation
- Copyright
- Trademarks
- Patents
- Franchises
- Licensing agreements
- Domain name
- Employment contracts
- Customer lists
- Client relationships
- Cash (liquid asset)
- Accounts receivable (current assets)
- Customer deposits
- Office furniture and equipment
- Cell phones
- Computer hardware and software
- Tools, machinery, and equipment
2. Prepare a Balance Sheet:
The basic balance sheet of a company shows the asset details. It is a financial statement to check the company’s liability (Current liabilities, Short-Term liabilities and Long-Term liabilities) and equity, along with its resources for the accounting period.
By using Microsoft Excel, you can draw a balance sheet.
A sample of a balance sheet is below to guide you:
You can generate your balance sheet by downloading a template and then drawing it in Excel.
List up your assets in the template and categorize them as fixed, current, and other. You must include all, even long-term and short-term assets while listing them up.
The best way to generate a balance sheet is through accounting software.
Here is an example of such a balance sheet generated by Freshbooks:
3. Add-up Assets:
If you are taking the help of accounting software, it will easily add up all your assets. Otherwise, you need to add your assets manually in a template using Excel.
Example:
- A builder has $5000 in cash in his business bank account.
- His $3000 bill for an ongoing job is still pending
(the contract is worth $5000, and he already pays $2000).
- He has another contract worth $1000.
- He has equipment worth $1500 and an investment worth $2000.
$5000 + $2000 + $1000 + $1500 + $2000 = $11,500 total assets
4. Basic Accounting Formula:
You can view the financial health of a business by using a basic accounting formula. It can also help you to counter-check your total assets figure.
The basic accounting equation (also known as the balance sheet equation) is:
Total liabilities + Equity = Total Assets
It is the network of a company (also known as capital)
Where,
- Liability is what a business owes, including loans, taxes, and expenses. There are many liability types, but the basic are:
Short-term liabilities
Long-term liabilities
- Equity is a net worth of a company.
The figure is correct if the liability and equity sum equals the total assets.
Here is an example of checking the figure using the balance sheet. You can also use accounting software for this purpose.
People may ask:
What to include in total asset:
Assets are anything you have that can be converted to cash anytime when needed.
There are two types of assets you can have:
1. Fixed or tangible ( machinery, buildings)
2. Non-tangible or non-physical (business reputation, copyrights, brands, etc.)
3. Other assets (liquid assets, current and non-current assets, long-term assets, and short-term assets)
(The list of assets is at the top)
Browse our blog for more useful resources for your small business.
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