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If the first thing a business does is raise finance, the next thing it does is to spend it, usually on assets. These are resources owned or controlled by a business and are used to generate money. Assets are generally the biggest investments made by businesses. Both long-term and short-term assets are essential for most businesses.

There are four main categories of assets, as follows:

1 Fixed assets. The term ‘fixed assets’ refers to assets that are a ‘fixed’ item within a business, usually for more than a year (and hence long-term assets). Fixed assets are also referred to as ‘property, plant and equipment’ and sometimes as ‘non-current assets’. They are for continuous use in the business and are essentially used to make money. There are many different types of fixed assets found in businesses. The most common types are land, buildings, machinery, fixtures and fittings, office equipment, computers and motor vehicles.

2 Intangible assets. Intangible assets are also long-term assets. They are non-physical resources and rights owned by a business that offer a competitive advantage or add value to the business. Examples of intangible assets include brands, trademarks and patents.

3 Investments. Many businesses spend their money on investments, which they intend to ‘hold’ for the future and hence are also long-term assets. Investments include assets such as shares held in other companies and rental property.

4 Current assets. The term ‘current assets’ refers to assets that help on a short-term basis, usually for less than a year. These are assets which are traded e.g. inventory, or by their nature ‘liquid’, e.g. cash. Money owed by customers is also a current asset because it is a ‘future benefit’. The customer will pay cash in the future. Money owed by customers is also referred to as ‘debtors’, ‘accounts receivable’, trade receivables’ or more simply ‘receivables’.

Reading a company’s financial statements should reveal what they have spent their money on (Secret 2.5).

Investing money in both long-term and short-term assets is essential for most businesses.