Liquid or Fixed Assets; What’s Better for My Business?
As most small trades business owners know, there are times of abundance and times where your business goes through a lull. The key to running a successful business is to always ensure you and your company are covered financially throughout the year. As your business ebbs and flows, how can you make sure your financial well-being won’t be compromised? With careful planning and a balanced portfolio of liquid and fixed assets, you can set yourself up for success regardless of the circumstance.
What are fixed assets?
As you may already know, fixed assets, also known as long-term assets, are purchases you have made in order to help operate your business. A fixed asset is a physical asset with a useful life of more than one year that helps your company generate revenue.
Fixed assets include things like:
Non-physical items such as a trademark or patent
When conducting your company accounting, it’s vital to keep detailed records of your fixed asset investments because they will play a substantial role in your business valuation. This is particularly beneficial when it comes time to sell or begin planning for your business succession. It is key to note that the turn-around time to sell fixed assets can be lengthy, and often these assets cannot easily be turned in to cash should the need arise. Further, while some of these assets may have appreciated in value (such as real estate), others may have depreciated in value, which can impact your bottom line. For this reason, it is recommended to balance your portfolio with liquid assets as well.
What are liquid assets?
Liquid assets are the counterpart to fixed assets in the sense that they are easily converted in to cash quickly, and without a loss in value. Having liquid assets as part of your investment portfolio allows you to free up cash with a relatively fast turn-around, allowing you to meet your financial needs without delay.
Liquid assets include:
Corporate owned investment portfolios
Cash value life insurance
Cash on hand
Accounts receivable, focus on reducing your wait times and have a collection process in place
Your liquid assets should allow you to cover your current liabilities for your business without damaging your company’s financial well-being. Assess your current liquid assets in comparison to your liabilities or speak with a financial advisor to determine if your company’s finances can cover you through an unforeseen slump.
Preparedness is one of the most valuable traits a business owner can have. Balancing your portfolio with both liquid and fixed assets helps you prepare for short-term and long-term growth and the sustainability of your company – without compromising your finances. If you’re not sure about your portfolio or feel that your current plan does not account for your growing business, get in touch with Darryl Smith of Synergy Life Financial today. Darryl knows the financial obligations needed to run your business and can offer you trusted advice and industry-leading knowledge applicable to your skilled trades business. Call (705) 434-0562 to review your investments and get your business on track for long term success.
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