How to value business assets

As a small business owner, it’s good to know what assets you have and their value. By keeping an accurate record of your assets, you can better understand your businesses profitability and overall financial position. 

This guide discusses how to value business assets, including: 

• Why asset value is important to your business 
• Calculating business asset values 
• How Countingup helps you manage your business assets

You can learn more about putting a general value on your small business here. 

Assets are the things you own or lease for your business that you can convert into cash. Along with liabilities and equity, assets are a significant part of your balance sheet, an important financial statement for small businesses. 

Assets can include property, equipment, stock, and available cash. If you’re a sole trader, these may double as personal assets at times. But, you must use something for your business to consider it an asset. 

Your assets help you better understand your business’s overall net worth, or its value after subtracting liabilities. They’re also important to be aware of for tax purposes. If you have a limited company, you’re legally required to record your assets. 

Keeping track of your assets can be useful if you plan to sell your business or need to show them to potential investors. Also, knowing the assets’ values will help to insure them. Once you determine what assets you have for your business, you can learn how to value yours.  

Asset valuation is when you determine the current cash value of each of your assets. Knowing how to value business assets means you’ll need to keep track of them along with your financial data. 

To put together an inventory, you’ll need to consider your current and fixed assets. Current assets are either already in cash or easily transferred to cash within one year. For example, these might include your inventory or short term investments.  

Fixed assets give your business value but have longer operational cycles. These include things like property or vehicles. 

You can have both tangible and intangible assets, which are either physical or non-physical. For example, your brand name would be intangible, while your business equipment would be tangible. Use these categories to list your business assets so you can begin to value them. 

Tangible assets may be easier to value than intangible ones. This is because the value of your tangible asset is the amount of cash you can convert that asset into. Once you list all of these assets, determine how much you paid for them. Then, you’ll need to consider how the original value may have decreased.

For example, if you’re valuing a business vehicle, you may have paid £20,000 for it. But, some assets, including cars, depreciate. You will need to factor in time and general wear or tear. New cars often lose 10% of their value upon purchase and a further 10-20% each year. If you get a quote for that car, it may help you understand its value. 

You could also determine the value of your inventory as a current asset. Say you sell coffee. First, determine how much you paid for the most recent coffee shipment. If you were to resell it, how much would it go for? Then you’ll know the inventory’s value.

You may have to sell some assets at a discount. You’ll also have to consider bad debts or if your business performance, such as bankruptcy, will cause the asset to lose value. 

Intangible assets can be a bit more difficult to value. So instead of determining how you can directly turn that asset into cash, you’ll need to do a bit more digging to determine its worth.

First, you could research similar companies that have recently sold or expressed the value of their intangible assets, such as their brand, patents, or contracts. This could give you a better understanding of the value of your similar assets. 

Aside from doing research, you can also look at the forecasted earnings from a particular intangible asset. This will help you understand how much it may be worth. Similarly, you could calculate how much it may cost you to produce a similar intangible asset. The product cost could translate into the value of the current assets. 

Once you know how to value your business assets, you can begin to add these values together. The combined cash values could give you an overall asset value and help you understand what your business might be worth if you liquidate it.

You can get sufficient insurance for the assets to protect your business from financial risks using these values. For example, if you have expensive equipment necessary for your business’s daily operations, and it breaks down, insurance will save you from financial trouble. 

Knowing your assets’ value can also help you plan for future growth of your business. You can eliminate assets that aren’t serving your company and use valuable ones to promote your business’s worth.  

It’s easier to determine your assets and their value with clear financial records all in one place. But, Financial management can be stressful and time-consuming when you’re self-employed. 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. 

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

Find out more here.