What do a manufacturing plant, carpenter’s saws, and a fleet of fuel-efficient scooters have in common? They are all potential business assets, and the value of all will depreciate over time. In fact, as anyone who has purchased equipment, machinery, or other business assets will know, as soon as you buy them you need to factor this depreciation into your financial strategy.

The question is, are you utilising the best strategy when it comes to your depreciating assets? The best advice from can actually save you money as the value of your assets depreciate.

Do you run an asset-intensive business?

Some industries rely on assets more than others. Construction, agriculture, manufacturing, wholesaling – you may well be in a business where managing your assets and their value is a major and regular concern. In such cases, the demands of managing your asset write-offs within the context of solid bookkeeping across the entirety of your operations might be beyond the best advice of your tax accountant. You may in fact best equip yourself for the future through a comprehensive and expert evaluation of your overall financial and strategy processes and direction. If this is the case, you may not be able to hire a CFO to manage depreciation and your total financial concerns due to limits on your budget. However, organising an outsourced CFO in order to specifically come up with a plan for managing your depreciating assets and bookkeeping within the context of a complete and precise financial strategy for the future is a prudent move for any enterprise in an asset-intensive industry.

Expert advice is all the more important once you take a closer look at how assets and their depreciation can impact your books. For accounting purposes, the equipment and machinery (or indeed any assets that you purchase) needs to be capitalised. They become assets of the company as opposed to business expenses. Yet once capitalised and used in the business, assets are required to be depreciated over their useful life. This depreciation expense reduces the business' profits each year. The right advice can give you a strong balance sheet where asset values are high and profits are protected.

How a write off can help

Write-offs permit small businesses (with revenue under $10 million) to enjoy the benefits the accelerated depreciation through a tax concession. But you need to be mindful as to how your tax accountants are treating these concessions in your balance sheets.

What does a strong balance sheet look like?

A strong balance sheet has high asset values and increased profits. This will allow you to

  1. increase the capacity for shareholders to declare dividends to shareholders
  2. improve the business capability of obtaining debt for future growth
  3. increase the chances of attracting further other investment
  4. potentially increase the business' saleability.

On paper, accelerated rates of depreciation are great for tax purposes. They enable a business to pay less tax during the year. There is also the benefit of tax concessions through writing-off assets. But if the tax accelerated rate is booked in the accounts, this increases the rate of depreciation and reduces the business’ available profits and asset values. This may come back to haunt you. And this is why you need the right advice when managing your assets and tax, especially if you run an asset-intensive business.

Have you employed the smartest strategies available?

Accelerated depreciation, write-offs – managing your assets can be tricky. It’s not just about keeping your profits in the here and now. It’s also important to have a consistent planned method for having the sharpest balance sheets. Business owners and tax accountants need to be mindful of this. They need to plan how best to recognise assets and particularly the depreciation of these assets in the accounts - for example, a common strategy is to keep asset registers and depreciation schedules separately for accounting and tax purposes. 

This is why evaluating the need for outsourced help in these matters is prudent. Outsourced CFOs can be hired for their specific expertise at managing asset depreciation, profit declarations, and asset tax write-offs in such a manner that gives you the strongest balance sheet possible. Even more importantly, they are experts who can integrate advice in regards to this precise issue within the context of an analysis of your overall strategy and financial operations so as to take stock and sharpen your business as a whole. Contact Calibre to discuss our options for hiring outsourced CFOs.

Important Disclaimer: Readers should not act solely on the basis of the material on this page. Items herein are general comments only and do not constitute or convey advice. Legislation and proposals of legislation are also subject to constant change. We therefore recommend that formal advice be sought before acting in any of the areas. This news article is issued as a guide to the readers. Calibre Business Advisory Pty Ltd and its associated entities disclaims any losses that may be incurred as a result of the reader undertaking any action based on this article.

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