13 February 2013

Zambia: It's Important to Invest in Assets

THE growth of any business will be noticed in the expansion of business assets among other health growth measured.

It is, therefore, vital for entrepreneurs to understand the importance of investing in assets, especially fixed ones as a sign of business growth and expansion.

A business owner that believes that his/her firm is doing fine with no corresponding expansion in business assets may discover at a later stage that the good performance may just be temporary.

A business which depends on working capital as a basis of doing business treads on a risky path because working capital may be fragile.

Today, it may be there but tomorrow it may not be there because of its fluid state. Working capital is bound to change its complex depending on the state of a business.

Working capital which mostly consists of cash is vulnerable to business situations.

For example, liquid assets may be demanded upon to cater for the unforeseen circumstances.

When we talk of fixed assets in this instance we refer to what most accountants call plant assets.

Plant assets include office equipment, land, buildings, motor vehicles, delivery vans, furniture and fixtures.

Fixed assets should be seen as a backbone of any business and their strength are measured in the same way.

When a banking institution is appraising a loan application from a client, it feels comfortable to find that huge sums of funds are invested in the fixed assets.

The bank knows that should a client's loan become toxic, one of the prominent fixed assets will be there to be sold and the repayment of a loan will be secured through the same.

Therefore, a businessperson should understand that excessive cash in the current account obtained from business operation should be set aside and invested into fixed assets.

Sometimes, business owners have a tendency of withdrawing excessive cash obtained after favourable business outing for personal use which is unrelated to the business.

This subjects a business to unwanted procedures and ultimately affects its operations negatively.

A business net worth is looked at from the composition of business assets found in the balance sheet.

A balance sheet which is a picture taken at any specific time of a business will show the exact composition of business assets and will show a net worth of a business.

Investing excessive money found in the current account should also be directed to Government bonds rather than leaving the money into the current account where it will not be able to earn any interest.

The business owners should also cultivate skill in negotiating with the banks to invest their excessive money in current accounts after a good business outing into proper investment with the products offered by the same banks.

Mind you a bank will not come to remind you to invest the money found in their banking ranks because the same money may be used as long as it remains in their care because that is part of their business.

Coming back to my subject of investing money into fixed assets, while interacting with some SMEs, I have witnessed some businesses which look splendid on their face value.

They meet all business obligations but a closer look at their balance sheets show that they are operating on shoe-string assets.

The working capital is far match ahead of the fixed assets and the anger is that in time of storms such businesses stand no chance of surviving.

It is like building a house on sand and when the wind blows the house is swept away.

A strong presence of fixed assets on the balance sheet gives comfort to a business owner and becomes a source of relief when a business experiences working capital shortages.

• THE working capital is far much ahead of the fixed assets and the anger is that in time of storms such businesses stand no chance of surviving.

When you look at the sources of financing a business you will trace it from four angles as money pumped in by the business owners, money generated by internal resources, money borrowed from outside and money

generated from the selling of business assets.

From this you will observe that selling of business assets is one of the generating business resources in time of need.

A part from buying assets to help in the smooth running of business, generating of necessary information on computers and machinery, a business can also hold assets for investment procedures.

These will be away from the core business, such as investing into buildings, putting them up for rentals as signal of business expansion in line with prudent management of resources.

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