By : John Hivern
Assets consist of two major components – cash and physical assets. While asset management is fairly an easy task, most of us – especially those who own small businesses- do not pay much heed to this essential task. The necessity of good practice dawns on us only when the tax season is round the corner.
The first rule to follow is to have good bookkeeping and accounting practices in place. In the long run, doing this will save you both time and money. No matter how insignificant the amounts may seem, be sure to account for every penny that comes in and goes out. Even a few cents here and there can add up to hundreds of dollars in due time.
Asset management and proper accounting practices are especially important when it comes to paying taxes to the government. Something may seem minor to you, but you don’t want to learn the hard way, as even a tiny indiscretion may turn up in an audit. This can happen to you years later than the actual event.
Accounting is also essential when you require loans/grants for business expansion/development. Such loans require submission of detailed accounting books. Under these circumstances, possession of proper documentation and books with accurate records enables you to establish your credentials as a responsible member of the business community.
Often, small business owners tend to overlook certain items, not realizing that they are actually assets. Anything worth money, or that can be sold, is considered an asset. For instance, most of us know that our computer equipment is an asset, but we may overlook the desk or even the chair we’re sitting on. Take a look around and see if you’ve missed any assets in your reconciliation.
Reporting and managing your physical assets require several things to consider. One of these is depreciation. You can easily understand depreciation when you think about a car. You already know that if you bought a car for $15,000, you won’t be able to sell it for that much five years later. In fact, the first time you drive it, the value decreases. That’s what depreciation is. Other things may decrease its value, such as mileage, wear and tear, and accidents. Everything, except property, is an asset subject to depreciation. Property usually increases in value over time.
Office equipment and most other equipment do follow the depreciation rule which must be taken into account when you are recording your assets. Other tools of the trade in any small business are generally considered assets that will depreciate in value. Remember that all assets must be recorded. If all of this sounds confusing, don’t despair, as there are tools available to help you manage your assets.
Now that we’re in the computer age, there are a number of software programs to help with asset management and bookkeeping. Most of the software is easy to use and user-friendly. Thus, you should be able to tailor-fit it specifically to your business. If you’d rather outsource these functions, think about talking to a qualified CPA.
The bottom line is that asset management in small businesses is just as important as it is in large ones. Be sure to take this into consideration and document everything. Not only can you benefit from proper asset management, but there can be serious repercussions if you don’t.
John Hivern is the owner and operator of FTP Assets, the #1 internet source of information about Asset Management & Protection.