How to do Asset Planning for Your Small Business
Ch1. 12
Asset planning is key to achieving long-term financial stability for your small business. This chapter offers guidance on how to plan and manage your business assets effectively, improving your balance sheet and financial resilience.
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Effective Asset Planning for Your Small Business
In this section, we’ll explore various aspects of asset planning, such as understanding asset types, effectively managing and leveraging these assets, and ensuring they contribute positively to your financial position. We will provide you with tools and strategies to optimize asset usage in your small business.
Previous Video: How to Forecast Business Expenses for Your Small Business
Next Video: How to do Tax Planning for Your Small Businesses
How to Do Asset Planning for Your Small Business – Transcript
You’re trying to get through the planning phase of your business to be able to put together financial projections, and you’ve gotten to the part where you need to determine the difference between purchases that you make for your business that are counted as expenses and purchases that are counted as assets. But how do you know the difference between the two, and how do you plan asset purchases and account for them? That’s what we’ll be discussing in this video.
Hey everybody, Will Scheren here from Small Business Startup Guide by TRUiC. This video is part of a larger course dedicated to helping small business owners cut through the noise and get to the essentials of starting and operating their business. If that sounds like it would be really useful for you, be sure to like and subscribe.
It’s customary to treat large purchases that hold their value that you plan to keep in your business for longer than a year as an asset rather than an expense. Take these two purchases, for example. A company work van and the tank of fuel used to power it. The fuel is a short-lived purchase: buy it in January, use it in January. It won’t continue powering your van later in the year. That’s how regular expenses work.
The van itself is different, though. It’s an expensive purchase, and if treated as a one-time expense, it might be a big hit on the company’s profitability. Then again, it won’t be gone at the end of the period. A good van will deliver value for years to come, so it makes sense to spread out its cost over time. That’s the idea behind asset purchases.
If you’re planning your business, you want to add your assets on LivePlan.com as part of your financial projections.
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Click on the “Forecast” tab and then the “Assets” sub-tab. Then click on “Add Asset.” Next, give the asset a name and let LivePlan know whether you plan to pay for the asset all at once, pay the seller over time and the same amount each month, or if you plan to pay the seller of the asset various amounts each month until the assets paid in full.
It’s important to note that if you plan to get a loan to pay for the asset, as in the company van example, then be sure to add the loan separately in the financing step. Also, if you use the loan to pay the vendor in full and will be paying back the lender over time, be sure to select the “One-time amount” option instead of the “One-time amortized” options on the “Price” tab.
All of the information that we put in here should be on the asset itself — not on any loans used to pay for the asset. Enter the remaining price information, then in the type section, leave long-term assets selected.
For almost all businesses, the current assets like cash, accounts receivable, and inventory are assets too, but we address those separately in a LivePlan forecast. Just focus here on the long-lasting purchases like equipment, vehicles, furniture, or intellectual property.
And finally, estimate how long the purchase will be useful for you, and let LivePlan know whether you plan to sell the asset when you’re finished with it and how much you would try to sell it for. Repeat this process for each of the assets that you plan to purchase over the time that you’re forecasting. After adding each asset, you’ll see that the assets have been added to your dashboard.
In the next video in the course, we’ll be looking at one of every business owner’s favorite topics: planning your business tax expenses.
This video is part of a step-by-step course that gives business owners all of the essential information to start and operate their business. We’ve provided a link for you to get access to all of the free and discounted business tools we mentioned in this course below this video.
Be sure to like and subscribe to get more of this content. We’ll see you in the next video, and if you have any questions, let us know.