You or your business almost certainly own assets. The cash in your bank account, your work laptop, your company car – these are all types of assets. Assets help businesses operate and grow. And when a business needs funding for growth, you can use assets to secure loans or invest in new opportunities.
UK businesses collectively own trillions of pounds worth of assets – around £2 trillion in commercial property and infrastructure, over £700 billion in machinery, equipment, and vehicles, and nearly £400 billion in intellectual property.
If you’re wondering what assets are, how they work, and how they affect your business, read on…
In a nutshell: Assets are resources that provide future economic value. They can include cash, equipment, property, or even intangible items like patents or brand reputation. Businesses typically use assets to secure finance or generate revenue.
What are assets?
An asset is something you own or control that earns you money, either now or in the future. If it can generate income, reduce expenses, or be sold for cash, it’s an asset.
You don’t have to be personally wealthy to own assets, and your business doesn’t need to be successful or even profitable. Assets can include anything of value, from machinery to a domain name.
Business assets vs personal assets
Business assets
Business assets are the tools, resources, and investments your company uses to operate and grow.
They can be physical (eg machinery and vehicles), financial (eg cash and investments), or intellectual (eg patents and trademarks).
You can use business assets to secure finance, improve cash flow, or expand your operations.
Personal assets
Personal assets are what you own as an individual that have monetary value. They can include property, savings, jewellery, and even digital assets like cryptocurrency.
If you’re setting up or already own a business, you can use personal assets to fund your start up or secure a business loan.
Types of company assets
Current assets
Current assets are the resources your business expects to convert into cash, sell, or use up within a year. Keeping an eye on them will show how well your business can cover short-term costs.
They can include cash, money owed to you by customers, inventory, advance payments (eg insurance or rent), and short-term investments that are due to mature within a year.
Tangible assets
Tangible assets are physical items that have a material form and can be touched. They’re the assets you can see and feel.
They can include cash, inventory, prepaid expenses, property, equipment, vehicles, or furniture.
Intangible assets
Intangible assets are non-physical resources that provide long-term value to your business. You can’t see or touch them, but they can be just as valuable (if not more so) than tangible assets.
They can include intellectual property (eg patents, trademarks, or copyrights), software, licences, permits, customer databases, and even brand value.
Non-current assets
Non-current assets are resources your business plans to hold for more than a year. They’re long-term investments that help your business grow and generate income over time.
They can include property, equipment, long-term investments (eg shares in other companies), and intangible assets like patents.
Fixed assets
Fixed assets are physical items your business owns and uses to produce goods/services or use for administrative purposes. They’re the core of your operations and would be expected to be used for many years.
They can include property, land, machinery, fixtures and fittings, vehicles, and IT equipment like computers.
Other types of assets
We’ve listed the most common assets above, but you may come across a few other phrases.
Operating assets: Resources your business uses in its day-to-day operations to generate revenue, such as cash, inventory, money owed to you by customers, property, equipment, patents, and copyrights.
Non-operating assets: Resources your business owns that aren’t used in its core operations but still provide value, such as investments in other companies, vacant land, or a building you rent out.
Financial assets: Assets that represent a right to receive cash in the future, such as cash in the bank, money owed by customers, shares or bonds, and loans to other businesses.
Natural resources: Assets that occur naturally and can be extracted or harvested to generate revenue, such as mineral deposits, oil and gas reserves, timber, water rights, and agricultural land.
Examples of assets in a small business
Example | Asset type | Why it’s valuable |
|---|
£10,000 cash in the business bank account | | Provides liquidity for day-to-day expenses and emergencies |
| | Represents future cash from sales already made |
| | Goods ready to be sold to generate revenue |
| | Provides a location for operations and can grow in value over time |
| | Enables the production of goods for sale |
| | Facilitates deliveries and business operations |
Registered trademark brand name | | Protects brand identity and prevents competitors from using the name |
List of 5,000 loyal customers | | Enables targeted marketing and repeat sales |
£10,000 custom e-commerce platform | | Powers online sales and business operations |
Assets vs liabilities
If you want to assess the health of your personal or business finances, you’ll need to understand the difference between assets and liabilities.
Assets are what you own or control that will provide future financial benefit. They increase your bottom line, either directly (like cash) or indirectly (like a machine that produces goods to sell).
Liabilities are financial obligations that will decrease your bottom line in the future, such as loans, unpaid bills, or mortgages.
Once you understand the difference, you can calculate your net worth by simply deducting your liabilities from your assets. A positive net worth, where your assets outweigh your liabilities, is a strong indicator of financial health.
For example, a healthy business might have £500,000 in assets and £200,000 in liabilities, resulting in a positive net worth of £300,000.
Accounting software can help you track and manage both your assets and liabilities more easily, so you always have a clear picture of your financial position.
As well as identifying whether your business is in a healthy financial position, lenders will also look at the balance of assets and liabilities to help them decide whether to lend to your business.
Why are assets important for businesses?
Assets are fundamental to any business. They’re the tools, resources, and investments that enable your company to operate and grow.
They keep the business running: Without assets like equipment, vehicles, or stock, most businesses can’t function or make money.
They show financial strength: Your assets show how stable your business is. For example, cash and stock show you can pay bills today, while property and equipment show long-term financial stability. This is important because lenders, investors, and suppliers all look at your assets when deciding whether to work with you.
They help you secure finance: You can use valuable assets (like machinery or property) as collateral to secure a loan, making lenders more willing to lend you money.
They can reduce your tax bill: Buying certain assets can reduce the amount of tax you pay. For example, the Annual Investment Allowance lets you claim 100% tax relief on a range of equipment and machinery.
They can boost your business’s value: If you ever want to sell your business or find investors, your assets help determine what your company’s worth. This can include both tangible and intangible assets.
Why is it important to understand the value of your assets?
If you’re looking to secure finance for your business or planning your long-term personal finances, understanding the value of your assets can help you make smarter decisions.
What are the benefits of understanding the value of your assets?
Keeps your balance sheet accurate, showing your business’s true financial position when reporting to stakeholders or applying for finance
Lets you use your assets as collateral to secure loans by knowing their current value
Ensures proper insurance coverage by knowing how much it would cost to replace your assets
Meets HMRC requirements for tax calculations, like capital gains and inheritance tax
Helps you get a fair price when selling or transferring assets by knowing what they’re worth
How does depreciation affect assets?
Most assets lose value over time. For example, a new car is famously worth less the second you drive it off the forecourt. That drop in value is called depreciation.
Depreciation can reflect wear and tear, usage, or simply becoming outdated. And because it’s not a cash expense (ie no money actually leaves your business), it reduces the profit you report on your income statement and lowers the asset’s value on your balance sheet.
How to calculate the current value of your assets
To calculate the current value of an asset, start with the purchase price or current market value. Then adjust for things like depreciation, condition, age, and resale value.
A common way to calculate depreciated value:
Depreciated value = Purchase price - Accumulated depreciation
But a simpler way to calculate annual depreciation is:
Annual depreciation = (Cost - Salvage value) / Useful life
For example:
£800 (Annual depreciation) = £5,000 - £1,000 (Cost - Salvage value) / 5 years (Useful life)
What is asset finance?
Asset finance is a popular way for businesses to secure the equipment or machinery they need to grow without paying the full cost upfront. Depending on your needs, there are a range of types to choose from:
When you secure asset finance, you’ll repay the cost of the asset in regular instalments over an agreed term.
Wrapping up
Assets can help your business grow and thrive. Understanding what assets are and how they can be used can support your personal and business financial health.
Here’s a reminder of the key points:
An asset is a resource that provides future economic benefit, whether for your business or personal life
Business assets appear on your balance sheet and include everything from cash to machinery to patents
Personal assets contribute to your net worth and include property, savings, investments, and valuable possessions
Current assets are short-term and liquid, while non-current assets are long-term investments in your business’s future
Tangible assets have physical form, while intangible assets (like patents) don’t – but both can be incredibly valuable
Photo by Marvin Meyer on Unsplash
