If you read the accountancy books, assets and liabilities are very carefully defined, but when is an asset not an asset?
I particularly like the definition of an asset in Robert Kiyosaki’s book Rich Dad, Poor Dad. In this book he clearly defines an asset as as “something that puts money into your pocket”. For the record he defines liabilities as “anything that takes money out of your pocket”. These, I feel, are good definitions.
This means that items such as office buildings, machinery and fixtures and fittings (together with your house) are not true assets unless the amount of money they generate is greater than the amount they cost.
In the case of buildings this will never be the case (unless you are a landlord) as buildings do not directly generate any income but constantly incur costs. The move to hybrid working and work from home emphasises this. Effectiveness has changed our view of many “assets”.
Whilst it is generally the case that investors, accountants and certainly funders in the form of banks like to see what they describe as “assets” against which they can take security. If we look from an effectiveness viewpoint it is often better to consider renting these “assets” to preserve flexibility and try to ensure that income exceeds expenditure. The increasing popularity of design and additive layer platforms as well as businesses such as Uber show the effectiveness of this.
If “assets” are so great then why is everyone constantly trying to reduce inventory which is defined as an asset, or debtors, also an asset under accounting rules?
To be effective we must internally redefine the word asset and then we can move forward.
How many “assets” have you got that are really liabilities?
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