You just started a small business and you look forward to develop it. In case your expectations are right and sales grow up, you additionally have to experience business asset growth. If not your assets develop and carry on with your sales growth, you will find that manufacturing your product is a trouble.
The important thing to dealing with asset growth in small businesses is to estimate your sales correctly. In case the real sales greatly vary from the estimated sales, then most of your assets, including inventory will all of a sudden either increase or turn down.
The same will take place to your accounts receivable. This could bring some sort of trouble to your small business. Small business asset growth management is an important factor to consider when there’s an increase in small business sales.
Fixed & Current Assets
In case you are a small business and setting any type of product, then your business may even have assets – both fixed and current assets. Current asset represents the actual value of the assets that you expect to liquidate within one year.
Your current assets normally consist of the inventory or products that you’ve for sale, your cash account, credit accounts, as well as accounts receivables. The fixed assets have a longer life as compared to current assets. Usually the fixed assets are plants and equipments – office building, electronics, office furnishings, motors and other large, expensive assets.
In case your business develops, then you will definitely experience some asset growth of both fixed and current assets. As it is a known fact that businesses fail due to low sales and sudden growth; therefore the management has to be careful at this point. Assets need to grow to help your business sales.
You will have to stock more inventories. You will probably pull out even more credit to your customers as well as your accounts receivable (A/R) will develop.
Phase-1 Business Growth
Phase-1 business growth refers to when your business is just starting out and begins to develop; all of your business current assets will be self-liquidating. Self-liquidating assets are sold at the end of a specific accounting term.
For instance, a restaurant business that is just starting out would purchase a certain amount of inventory and expecting to sell all by the end of time period. Which indicates the inventory is sold. The A/Rs are collected and the accounts payable or bills to suppliers or vendors are paid.
Phase-2 Business Growth
If you’re a start-up restaurant business and starts growing, you move to the phase-2 of your business growth. The restaurant business will add additional inventory and possibly adding more dishes to menu list. In case you are a traditional bricks and mortar business, you will add inventory to your stock, POS displays, and a number of items for the selection by your customers. And if you are a business with online presence then you must make your products visible on your website.
In this second phase of business growth, you will have a certain level of your products that are your current assets, together with yourself-liquidating inventory. These current assets are the tools from which your clients make their selections as time goes on and from your POS displays.
From the phase-1 business growth to phase-2 business growth the business management response is of importance.
In the phase-1 business growth, the business has a level of fixed assets at all times. Together with that, they have transient current assets that go up and down with customer demand. In phase-2 of business growth, the fixed asset level is still there; however the business now has a level of permanent current asset. If the business is developing, so is the level of the permanent current assets.