A business asset is a resource owned or controlled by a business (including a sole trader business!), that may provide future benefits, and that can be sold for cash.
The value of an asset is generally determined by its ability to generate future cash flow or benefits for a business.
For example, the value of a house can change depending on its location, condition, and also the market demand. Similarly, intellectual property could grow in value if owning them increases your potential profit – think KFC’s secret spice recipe that makes their delicious fried chicken such a best-seller!
Types of assets
When it comes to assets in a sole trader business there are two main types:
Tangible Assets: These are physical assets, like houses, vehicles, machinery, equipment, and inventory. These tangible assets are factored into the net worth of the business and are often used in their day-to-day operations.
Intangible Assets: These assets aren’t physical, but still have value. For example, intellectual property, patents, trademarks, and copyrights. Intangible assets are often important to a business’s competitive advantage and long-term success.
Current Assets vs. Non-Current Assets:
Assets can also be categorised as current and non-current, based on how easily they can be turned into cash (liquidity) and how long you expect to keep them (holding period).
Current Assets: These are assets you might convert into cash or use up within one year, like cash or inventory. Current assets are super important for the day-to-day operation of your sole trader business.
Non-Current Assets: These are assets with a longer holding period – usually more than a year. Examples include houses, machinery, or long-term investments. Non-current assets contribute to the long-term value and sustainability of your sole trader business.
Understanding what your assets are, as well as their value, is important when it comes to making informed financial decisions for your business, planning for the future, and building and preserving your business’s wealth.
