What are material resources in business?

If you run a business, then at some point, you’ll have to deal with material resources — but what are they? 

Sometimes called physical resources, material resources are assets that you can touch. Things like machinery, products, and buildings. Like any resource, it’s important to know if you’re using them effectively. 

In this article, we’re going to explore:

• What other types of resources are there?
• Can material resources expire?
• Why do you need to manage your material resources in business?
• How can Countingup help you manage your resources?

There are four main types of resources, including material resources. These are:

A financial resource refers to any money-based assets used in the running of the business. This is typically your cash and how you spend it – but it can also refer to loans or external investments. 

Proper management of financial resources is crucial to the success of a business. Any failures in this area could damage the short-term operations, such as failing to pay the rent or an inability to buy materials due to lack of cash flow. If this happens, the business itself could be at risk of closing.

On the other hand, if too much of the financial resources are conserved, your business could be experiencing a high opportunity cost. This refers to the cost of missing out on one thing by choosing another (in this situation, hoarding the business’ wealth instead of expanding and potentially making more money).

Each person that works for your business is part of your human resources, including yourself. If you’re a sole trader with no employees, you still qualify as a human resource. Larger businesses usually have human resource departments to deal with any employee-based issues. 

If you run a small business with a limited workforce, you won’t need a HR department. This is because the management of any potential employees or apprentices falls exclusively to you. 

Similar to your material resources, any intangible resources are owned by the business and help you to achieve your goals, however, intangible resources cannot be physically touched. 

Your intellectual property counts as an intangible resource, including your company logo and brand, or any copyrights and patents you may have. If you run a dog bakery business, then the recipe you use for the treats would qualify as an intangible resource.  

As time passes and technology becomes more advanced, some of your material resources can become obsolete. A computer, for example, can slow down as it ages, which can damage the profitability of a graphic designer. 

When a material resource is no longer efficient, costing more than it provides, it can be better to replace it with an up-to-date model. The new investment may be initially costly, but the improved efficiency should be able to make up for the additional expense. 

The term ROA refers to Return On Assets, and keeping track of your ROA can help show how well you’re managing your spending. ROA is best used when comparing your business to previous years, to highlight your company’s asset efficiency. A good ROA can even give investors another reason to consider your business proposal. 

Since knowing your return on assets is an important thing to keep track of, you need to know how to calculate it. Thankfully, if you want to figure out your business’ ROA, there is a simple formula you can use: 

Return on assets = (Net profit ÷ Total assets) × 100

The net profit refers to your total revenue, minus all your costs. Total assets, on the other hand, refers to the total amount invested in purchasing those assets. For example, if it cost you £25,000 to buy all the equipment you need for a nature photography business, and that business earned £2,500 over the year, your ROA would be 10%. 

While the benchmark for a good ROA depends entirely on the industry your business is in, an ROA above 5% is generally considered good. The reason ROA benchmarks vary is because a freelance digital designer will need fewer assets than a food stall. The difference in required assets would lead to an unexpected difference in return on assets. 

As mentioned, material resources can lose their efficiency over time. By addressing any maintenance effectively, you can make sure to get the most life out of them. This could be by repairing or completely replacing them and investing in something better. 

The better method depends on several factors, including: 

• How old the current equipment is 
• The cost of new equipment vs a repair cost
• How much new equipment could improve your profit margins

Spending money to save money can be tricky, which is exactly why proper management of your material resources is needed. This way, you can ensure that you get the most out of your investments. For instance, poor resource management could be buying brand new equipment, and then replacing it the following year. 

By managing your resources more effectively, you can limit your spending and improve your business’ profitability. This can, in turn, allow you to reinvest more cash into growing your business in the future. 

Knowing exactly when you have the capital to invest in new equipment can be frustrating. That’s why thousands of business owners use the Countingup app to make their financial admin easier. 

Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. With features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

Certain features, like the automatic expense categorisation, can help you keep track of exactly when and how much you spent on material resources. It can also make it easier to prepare for future maintenance or upgrades.

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

Start your three-month free trial today.

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