Running an ecommerce business is all about balancing the books between income and expenses. However, with almost 1 in 4 ecommerce businesses failing every year, it’s clear this is not always done successfully.
Understanding everyday bookkeeping such as revenue, liabilities and expenses are all important to understand.
However, you also need to keep track of your fixed, digital, monetary, physical and intangible assets for the long-term health of your business.
With more and more ecommerce startups looking to attract external investment at an early stage, it’s clear that asset tracking should be implemented from day 1 in your business.
Why Should you Keep Track your Assets?
Knowing your assets helps to understand the value of your ecommerce business, which is all-important should you choose to attract investment or sell.
In addition, tracking assets can help guard against loss of value in your business through damage or theft. By knowing the value of your assets, you will better understand what value of cover you need from insurance should the worst happen.
You may also be surprised to learn where the value in your business lies; maybe you thought it was in your stock but actually your brand recognition is a more valuable asset?
Types of Assets in an Ecommerce Business
Anything that keeps things running smoothly and adds value to your business can be classed as an asset.
It goes much further than just the items your business owns though, as we look at below:
Fixed Assets
The definition of a fixed asset is something that has value (such as an item or property) that cannot be easily changed into money.
The term ‘fixed’ refers to the fact that these assets will not be used up, consumed, or sold in the current accounting year, although this of course can change.
Fixed assets include any property, office equipment and office space owned by your company.
If you rent or lease these however, these items should be entered as liabilities in your accounts.
The value of fixed assets can change over time, but should have a more stable value than physical assets such as inventory.
Digital Assets
Many ecommerce businesses rely on digital assets to function, or they could be selling a digital asset instead of a physical one.
Digital assets are anything that can be digitally stored on a server or in the cloud, including:
- Files (including websites)
- Software
- Visual assets such as logos etc.
- Documents
- Videos
Basically, anything digital that adds value to your business is recorded as a digital asset. These assets are assigned a value depending on how long it took to create them in terms of time and money, and how useful they’ll be moving forward.
You may also want to consider the intellectual property value of these digital assets, which we will look at in the ‘intangible assets’ section.
Monetary Assets
Put simply, monetary assets means the cash you use to pay suppliers and take care of expenses. But even small businesses need help to manage their monetary assets when the orders start rolling in.
You should manage your monetary assets through a business bank account, and consider a separate account for payroll if necessary.
Having a healthy cashflow in your ecommerce business is hugely important, as is proving these monetary assets through accurate cloud accounting.
Physical Assets
Every business has tangible items that have value, including the products you buy and sell and the computers and other hardware you use to run your company.
Proper management of physical assets for your ecommerce depends on managing your inventory.
In the fast-moving world of ecommerce, there’s always a risk that your products will depreciate in value if you don’t sell them fast, either through degrading or with a change in consumer trends.
One alternative to inventory management for ecommerce businesses is by selling using a dropshipping model. Management and fulfilment are honoured by a third party, so you have no physical assets to worry about and can get on with maximising profit opportunities. Of course, this means your business will have less value if it you choose to sell it in the future.
Intangible Assets
Intangible assets are ones that may not have any material value but have an important business value.
It is measured by something that is likely to bring a future economic benefit to the business, even if that profit has yet to be realised.
A good example to understanding intangible assets would be to imagine that Coca-Cola lost all their premises, staff and production capability overnight.
Even though the tangible assets have been wiped to zero, the business still has a huge value because of its intangible assets such as trade knowledge, brand loyalty and trademarks around the Coca-Cola name, all of which can be used to generate profit in the future.
Some common examples of intangible assets include:
- Intellectual property
- Customer data
- Trademarks
- Franchises
- Reputation
- Brand
- Goodwill
This is very important in ecommerce, with many online businesses needing to run a less profitable business model initially in order to build intangible assets (such as a loyal brand and customer data), which can then be used to attract investment and create a more profitable business model.
The online marketplace is extremely competitive and it’s common to see larger businesses buy smaller challenger brands because they see them as a threat to their intangible asset value.
Understanding Asset Value is Key
If you are considering selling your ecommerce business or want to attract investment, understanding asset value is key.
All of the assets above come into the equation for valuing an ecommerce business, as well as looking at the profit margin of the business itself.
It’s important to note that physical assets are also subject to depreciation over time, although intangible assets may actually increase in value.
If you are considering selling your business, it’s vital to prove the value of these assets through accurate bookkeeping.
Confused by Ecommerce Business Assets? We Can Help
Understanding the assets in your ecommerce business is key to determining its value, both to you and in the event of a sale.
If you would like help determining the value of your assets, Your Ecommerce Accountant can help. We are specialist accountants for ecommerce businesses, working with sellers everyday on bookkeeping, tax returns, VAT as well as determining the value of their current assets.
We offer a fixed fee pricing structure and no long-term contracts, giving you peace of mind. For a FREE 30-minute consultation, please click below.
