(This is the 2nd part of a four part series)
As we mentioned in our earlier blog, a lot of startups face difficulty later in time, when they fail to maintain proper records regarding their assets and liabilities. Here are some measures to be taken for recording assets and liabilities.
Actual assets held by the company and its net realizable value can be considered as the minimum value of a company while negotiating with an investor.
In most of the companies, Fixed Assets form a major part of the company’s investment cost. Though value of fixed assets and depreciation are disclosed in balance sheet, item wise details of Fixed Assets should be maintained within FAR (Fixed Assets Register). Fixed assets should be tagged with a code for identification. It is a good practice to carry out for physical verification of Fixed Assets on annual basis and maintain a record of verification signed by persons who carry it out.
For some of the businesses inventory is a major component in their working capital or even investment. If inventory usage is very high, details of inventory inward, consumption, shrinkage and outward should be maintained and periodically verified.
Cash and Bank are the most liquid form of assets. They are the main medium for settling transactions. Due to its high liquidity, especially cash transactions need to be closely monitored and documented. Following are few critical considerations for cash and bank related documentation:
Loans are taken by SMEs to meet the investment requirement at an early stage. This type of investment is expected to be paid back at a certain point of time unlike capital. Any new investor expects to get details of existing loans of a company prior to investing in the company in order to assess the financial structure of the company. Proper documentation of loans can be ensured by adopting following basic measures: