How to buy fixed assets
Published Tue, Aug 22, 2017 Updated Tue, Feb 16, 2021
Fixed assets are generally safe investments, but they’re only ‘safe’ if you understand what you need to consider when you’re buying them. So how do you actually buy fixed assets? Here’s our mini guide to help you out…
Get a letter of clearance
When you’re investing in assets, you need to make sure the business you’re buying them from has paid their sales taxes and payroll taxes in full; otherwise you could find yourself responsible for these kinds of bills. Getting a letter of clearance confirming that the business is up to date with their payments on the date of closing will ensure you’re not lumbered with any additional costs after the sale has been processed.
Know the asset’s useful life span
Fixed assets have a physical life span and an economic life span. An asset’s physical life refers to how long the asset will last and it should take into account things like deterioration and wear. It is possible to extend the physical life spans of your fixed assets through repairs and maintenance, so that’s something you should take into account when purchasing them. Economic life span is usually shorter than the asset’s physical life, and refers to the period that the asset is to be used that is likely to include some form of repairs or maintenance in order to enhance its upkeep. Being aware of each of these life spans when investing in a particular asset will help you determine the cost of the asset in the long run and should be a determining factor when choosing what to invest in.
Having an estimate of the residual value will help you determine how much money you might be able to recover from an asset once it has reached the end of its useful economic life span. This is also occasionally referred to as the salvageable value. To calculate an asset’s residual value, you can use a formula known as straight-line depreciation or employ a declining-balance method. You might want to consider employing the assistance of a fixed asset consultancy firm to work out these values for you, as well as to support you through the whole process of fixed asset management.
While these steps merely scratch the surface of what is often a complicated investment process, it’s useful to have a few starting points. The best option if you feel unsure about any stage of fixed asset investment is to call in the help of professional accountants dealing solely in this field.