Almost every business needs physical resources to keep things running! Whether it’s a vehicle, a laptop, or an office building, these assets exist to help produce the goods or services that your business sells. They also represent your business’ overall value, so understanding how they fit into your financial plan is really important.
In this article, we’ll look at how we categorise these physical assets, how they appear in financial records, and how they compare with intangible assets.
What is a tangible asset?
A tangible asset is a physical item (or property) that is owned by a person or business, and it has actual economic value. These tangible assets exist in a physical form and can be seen or touched everyday.
Tangible assets are essential for businesses as they contribute to how they function and create revenue. They are used to produce the goods or services sold by the business. They can also be sold to secure additional funding.
Put simply, a tangible asset is a physical resource that helps a business operate and generate income.
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Types of tangible assets
Tangible assets will usually fall into two main categories: current assets or long-term assets. The largest difference between the two is how quickly the asset will be used or converted into cash.
Current tangible assets
Current assets are short-term resources that the business will use or sell within one year – or within a normal business cycle. These are the assets that support daily functions and help to maintain cash flow.
Examples include:
Inventory
Inventory assets include items such as raw materials or finished products. Managing this inventory is required to maintain liquidity and meet customer demand.
Accounts receivable
Accounts receivable represent outstanding payments that are owed by a customer for a product or service already delivered. Although this cash isn’t in the pockets of the business, it is still considered short-term as it is likely to be collected soon.
Cash and cash equivalents
This category can include anything from actual physical cash to highly liquid investments. These funds are available for immediate use, including for expenses or emergencies.
Long-term tangible assets
Long-term assets (also called fixed assets) are the physical resources owned by a business that will provide value for more than one year. These typically support longer-term growth and business operations.
Common examples include:
Land and buildings
This might include property in which the business operates. Land will typically not depreciate, while buildings might over time based on accounting rules.
Equipment and machinery
Equipment ranges anywhere from tools used in manufacturing to technology used to oversee production. These assets are usually depreciated over their useful life.
Vehicles
Cars, vans, and trucks are all tangible assets used for transportation. Businesses that depend on distribution or providing a service rely heavily on these assets.
Tangible assets vs. intangible assets
The main difference between tangible assets and intangible assets is physical presence.
Tangible assets are physical items that can be valued based on their cost or market price. Intangible assets, on the other hand, have no physical form but still contribute value to a company.
Examples of tangible assets include:
- Machinery
- Buildings
- Vehicles
- Inventory
- Land
- Cash
Examples of intangible assets include:
- Patents
- Copyrights
- Trademarks
- Brand recognition
- Goodwill
- Proprietary technology
Because tangible assets have a physical form, they are generally easier to value and may even be sold as collateral for a business. Intangible assets will typically require a more complex method of valuation as they are typically tied to future benefits.
Another difference lies in how they are treated in accounting. Tangible assets are usually depreciated over time, while intangible assets are typically amortised.
| Comparison | Tangible assets | Intangible assets |
| Physical form | Have a physical presence and can be touched | No physical form |
| Examples | Buildings, machinery, vehicles, inventory, land | Patents, trademarks, copyrights, goodwill |
| Valuation | Based on purchase price, market value, or replacement cost | Based on projected future economic benefit |
| Accounting treatment | Depreciated over their useful life | Usually amortised |
| Collateral use | Often used as collateral for loans | Rarely used as collateral |
| Liquidity | Some can be sold relatively easily | Usually harder to sell independently |
Why understanding tangible assets matters?
Understanding tangible assets is really important for businesses when it comes to managing their overall strategy. We’ve listed a few below:
First, tangible assets can provide context as to the actual financial health of a business. If they’re on the balance sheet, they help investors to evaluate.
Second, they are important in managing your risk and financing. Due to their physical value, many tangible assets can be used as collateral when applying for loans or credit.
Finally, understanding tangible assets helps businesses make smarter decisions. Buying, selling, or upgrading assets can help improve efficiency and long-term growth.
In short, tangible assets form the physical foundation that supports many business activities and financial decisions.
Managing tangible assets effectively
It’s really important to understand how your physical assets can affect your finances. Your business needs a clear picture of its cash flow, and you need to make sure your assets are supporting your growth rather than being a burden.
Tools like Brixx can help make this easier. It can help you to track financial performance, forecast future scenarios, and visualise your cash flow. Businesses find it much easier to see how their assets fit into the bigger picture. Get started with a free 7-day trial to see how it can work for you.
