Why are Fixed Assets crucial for Businesses?
18

Sep 2020

Almost all businesses require some kind of fixed assets in order to function properly, and as the company grows, the number of fixed assets owned by the company also increases. The worth of a company can be estimated by the total amount of fixed assets the company owns. Though other factors such as goodwill, patents or trademark etc. also need to be taken into consideration while finding the worth of a company.

There are many important uses of fixed assets for a business but let us first understand what a Fixed Asset is, and then we will delve into the importance of fixed asset for a company.

What is a Fixed Asset?

A Fixed Asset is a part of the property of the company, which is kept in possession of the company for the long term. It is usually a tangible asset or meaning it is an asset that can be felt on touch. Another way to identify such assets is that such assets cannot be consumed within a year and are usually appear on the balance sheet of the company as equipment, plant, machinery, etc. These assets can also refer to capital assets (significant property such as cars, bonds, stocks, etc.)   

A company must be clear about the difference between Fixed Assets and Inventory. For Eg., If a company has bought chairs or any furniture for its use, then this will be regarded as an asset for the company. If the company has bought the furniture with the intent to sell the said furniture for a profit, then the furniture will be considered as an inventory for the business.

Now let’s understand the importance of Fixed Assets in a company

Why are Fixed Assets important for a Company?

There are a number of reasons which Fixed Assets are an integral part of a company. These are:

  1. The Fixed Assets of a Company help Generate Revenue

Many businesses require machinery or infrastructure, which will help in producing a larger amount of goods or services. This will help generate a greater amount of revenue and will also significantly increase the profitability of the company. An increase in the fixed assets of the company will also help increase the bottom line of the company as the fixed assets will help increase the production speed and the production capacity.

  1. Fixed Assets help in increasing the Business Valuation

There is a cost associated with each asset of the company. The greater the number of assets of the company, the greater will the valuation of the company. This will help many companies in selecting the perfect company during acquisitions and mergers.

A higher number of assets will also mean that the company has many different offices or performs business activities in various jurisdictions which shows how vast the business empire is.

  1. Selling a Fixed Asset can help in quickly obtaining liquidity

Having liquid cash in hand has a huge benefit for a business. With an adequate amount of liquidity, the management can perform its day to day business tasks easily. The Fixed Assets can be used as leverage, which can be either lent to a business entity or can be sold to a business entity in order to make a quick buck.

While doing this, the management has to take care that it lends the assets of the company in such a way that the business activities of the company are not affected and the management also has to maintain that the business continues to grow.

  1. The Fixed Assets help in the management of the Business

A huge number of fixed assets may be very difficult to keep track of, but there is a different way to tackle this situation. The fixed assets help the management of the company to divide the business into departments. Each department will handle a particular amount of Fixed Assets, and if there is any mismanagement, then the department will be responsible. This move will help in the easy management of the business.

It is because of these reasons, and it is very difficult to think of a business without any fixed asset. Fixed assets have become part and parcel of business. The management should try to keep only such fixed assets that are required by the company as managing these assets may prove a difficult task. This is why a business should take the assistance of a third party, which will help in the proper management of fixed assets.

If you are in search of such a firm for your business in the United Arab Emirates, then look no further as the JAXA Chartered Accountants can help you. JAXA is a reputed firm in the United Arab Emirates and is providing its services to businesses for the last 13+ years. The experts at JAXA will help you to manage the Fixed Assets properly.

JAXA also provides a number of other services such as Accounting Services, Audit Services, VAT and Tax related services, and many more. For more details on the various services provided by JAXA Chartered Accountants, Contact Us. We will be happy to provide you with all the answers your business requires.