Entrepreneurial Bookkeeping

Assets

An asset is anything that is either cash, can act as cash, or can directly produce revenue for you. You need these to make revenue and turn a profit; without these, you don’t have a viable business. There are a few different types that you need to think about. We’ve talked about the advantages of thinking about your business in terms of revenue and profit several times in the course already. This helps you visualize where your money comes from or goes and what you need to do next. Using this to guide how you build and invest in assets is an important next step for growing your business.

Types of Assets

You need to treat yourself like an asset. You bring in revenue yourself, after all, and you’re the biggest asset in the business. But you don’t want to be the only asset, because that puts a hard limit on how much you’re able to grow and, if something happens to you, your business will just collapse. Other people who are part of your business also need to be thought of as assets.

The two types of people who work as assets for you are customers and employees (or contractors). When you think of customers in this way, it helps you consider how they work as a source of revenue. Customers include people who read your blog, listen to your podcast, etc., even if they don’t necessarily buy anything from you yet. Invest in them, try to attract more of them, and figure out how to keep them happy so that they become a reliable, growing source of revenue.

Employees and contractors are also assets and we consider them the most important. It might be tempting to think of employees only as expenses, but this is wrong because they’re a source of revenue too. For example, hiring a talented coach, investing in that coach’s training, and rewarding their work could make them a great source of revenue—more than making up for the cost of employing them. Think of contract workers the same way; invest in talented people and you’ll get much better work from them, meaning that you can better rely on them for the long term revenue growth you need.

Any program or product that you sell, depending on what business you’re in, are also kinds of assets. This course is an example of a program asset, as it’s a service that we sell to people for money. Just as with people, try to think of these as sources of revenue first and expenses second. This helps you see the full money making potential in your products.

One type of asset you might not have considered are your work processes. As you grow your business, creating more programs, employing more people, etc., you will need to have documentation that tracks and guides things. This is important for keeping everything running smoothly, especially as your business grows. The bigger your business, the more complicated things get and the more you need to think about processes to keep things running and the money coming in. An employee manual is an example of a process asset, as it makes training new employees quicker and easier, meaning that those employees can then bring in more revenue. With a good manual, growing in other areas becomes easier and less expensive.

Finally, capital is a type of asset. A lot of people think of this as their only asset, but it’s best to think of it last, as it’s actually most useful as a way to invest in other assets than on its own. When you’re trying to figure out how to decide on your most important assets and what to focus on, asset capital is best when it’s treated as a tool for investing first.

Liabilities

Liabilities, as we covered in Module 3, are anything that count as a type of debt you owe to someone else and that doesn’t directly make you any revenue. They usually look like a negative amount on your balance sheet and you will need to pay them at some point. Comparing your liabilities with your assets is a good way to determine the health of your business and what your next actions should be. Is it safe to invest a lot of money back into growing the business, or do you need to figure out how to deal with some of your liabilities first?

Credit card balances are examples of liabilities; they’re usually necessary to keep your business running, so you can’t just cut them out, but they don’t directly make you any revenue and you do need to pay the credit card company that owns the account eventually. The key is to manage these liabilities carefully, so they contribute to your business in a positive way and don’t get out of control. Taking on more debt than you can keep up with could cause you serious problems down the line.