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Selling an Asset Rich Business
An asset rich company is one with valuable tangible assets, such as property, equipment, vehicles and inventory. Some businesses tend towards being rich in assets. Retail stores that have cash tied up in inventory to sell are examples of asset-rich businesses, as are agricultural companies that might own land or livestock. Manufacturing companies that own a lot of equipment are also asset rich companies
If you’re planning to sell an asset rich business, there are some important things to consider as far as those assets go. Even if you’re not planning to sell now, putting processes in place to protect your assets can give you a head start if you choose to sell in the future.
Buyers will want to know the maintenance history of your equipment, making it important to keep a maintenance history. Schedule regular routine checks for your tangible assets and keep a maintenance log from the moment you purchase any equipment. Keeping track of any repairs as well as routine maintenance activities lets you show how machinery has been cared for over time.
Although this is important for all tangible assets, it’s especially important for machinery and equipment. Buyers will want to be assured that the asset will not break down soon after the sale, especially if it’s part of the process that makes the company money, such as manufacturing equipment or delivery trucks.
Depreciation and the Asset Consumption Ratio
There are two numbers to keep in mind when valuing your assets: depreciation and the asset consumption ratio. At its most basic, depreciation is the decrease in the value of your assets over time. Different types of equipment and different industries may have standard depreciation values, so it is important to discuss these figures with an accountant.
The asset consumption ratio measures how much a depreciable asset has been consumed. This is calculated through comparing value on paper to the amount it would cost to replace the asset today.
These figures can help you calculate the value of your business and give buyers a clearer idea of the values of your assets. Depreciation can also be important at tax time, so be sure to understand and keep track of it from day one of your business.
Asset Replacement Fund
The last thing to consider is: do you have a replacement fund? All equipment will eventually need to be replaced. Furniture could be kept for many years, but computers may need to be replaced more frequently. Figure out the cost of replacing your assets, divide it by the number of months until it needs to be replaced and put this amount in a replacement fund.
A healthy replacement fund is especially important for equipment that generates money. It could be said that all assets help make money, but if your business will stop running if a piece of equipment breaks down, a replacement fund for that piece of equipment is essential.
A replacement fund allows you to keep your equipment current and fit for purpose, making your business more attractive to buyers if you ever choose to sell. Even if you’re not planning to sell your business, looking after your assets makes good business sense. It allows assets to run smoothly and be replaced quickly if required. Knowing the numbers helps you to understand the value of your business.
If you are planning to sell, knowing your assets and their value becomes essential. Assets that have been replaced regularly and are well-maintained attract more buyers. Additionally, a seller who understands the depreciation and asset consumption ratio demonstrates that they have run their business intelligently and efficiently, which could spark a higher offer.
For Further Information about this article, contact your nearest LINK Business Broking office at: