Your business assets are things or assets of value, including stock, property, trademarks, or patents, which your company owns. Business owners may choose to convert their assets into cash to finance the business’s growth. However, some businesses cannot do so easily because their assets cannot be converted into cash. For those business owners, it is better to use the available cash in your business to finance the growth and development of the business. In fact, if you want to know how to finance the business, then you should keep in mind that assets and cash are the two most important financing tools in any business.
In this article, I will discuss the conversion of business assets into cash. In this discussion, I will also discuss the uses of these cash funds for the business. I hope that by the time you finish reading this article, you will have a better understanding of business assets and cash.
If you are a business owner, then you probably have some assets such as inventory, raw materials, and machinery, which you have acquired in the past. You may also have accounts receivable and inventory on your books. Your goal for converting your assets into cash is to pay off your outstanding debts and to make more profit.
One way to convert your assets into cash is by taking your accounts receivable and inventory and selling them to a third party. You can use this process to sell all your assets if you have many different kinds of assets. The best examples of intangible assets are goodwill and trade name.
Another method to convert your assets into cash is to use the cash flow method. First, you should identify all the different types of assets and liabilities in your business. Next, you need to determine the income and sales performance of each type of asset or liability. After that, the income and sales performance of all assets and liabilities should be compared with the cash flow of your business to determine the classification of your business as cash-based.
If you have only a part of your business materialized, the entire value of the business is considered a tangible asset. For example, if your business is a manufacturing concern, your tangible assets include your factory buildings and machineries. Although you do not have much room to expand your business, you can convert your fixed assets (such as your plant and vehicles) into shares of equity. However, it is better to hold on to the property for a better future earning. This is why it is important to consider conversion of your fixed assets into a mixture of cash and equity.
The third type of asset is an intangible asset. It includes intangible assets such as accounts receivable and inventory, which cannot be physically tested. However, there are still some economic value elements included in the overall worth of an intangible asset because it can potentially create cash flow from future sales. The economic value aspect of intangibles does not include the price paid for the asset. This is why it is important to consider the cost of capital for every type of intangible asset to determine its potential economic value.
There are three basic ways to estimate the value of your tangible assets. The first is to estimate the fair market value of your assets based on your purchase cost method. The second method uses the economic value theory, wherein an asset’s future sales are determined by using replacement costs. Lastly, the third method bases its estimate of the worth of your business assets on comparing the cost of replacement with the total cash payment would have been in the absence of depreciation. These three methods are quite effective in the determination of the cost of capital for your business assets.