As your company expands, it would be almost impossible for your plant assets not to follow suit. What are plant assets? In a word, plant assets are the direct and indirect materials that allow you produce goods and/or services. So as your company grows, so too will your plant assets.
There are four primary types of plant assets and below you will find all the fundamental information on managing them. If you’re already ready for expansion, check out this action plan to profitably expand your business through international sales and partnerships.
A Detailed Definition
Plant assets are commonly referred to as fixed assets. This is because most plant assets are either 1) long-term assets, 2) assets that are difficult to liquidate, or 3) both. Long term assets are often difficult to liquidate, and vise versa.
The four main categories of plant assets are buildings, equipment, land and improvements. Only one of these is considered to avoid depreciating over time (at least, generally speaking): land. The reason the other three are depreciable is because no matter how well-built or well-designed they are, in the end time will get the best of them and they will either need to be replaced or repaired.
For more information on financial analysis, refer to this excellent course on the basics business finance (with advice on how to use Excel to construct financials).
Low vs. High
Some companies will have a much higher percentage of plant assets than others. As you might have guessed, these tend to be industrial companies or companies that deal with physical products.
Much of the booming tech industry has extremely low percentages of plant assets (office buildings with computers), while an older industry like oil would have an extremely high percentage of plant assets (buildings, shipping infrastructure (ships, trucks, etc.), equipment, land, etc.).
If you know how to understand different financial analysis reports, then you can readily make sense of how a company structures its plant assets. Read this great blog post on financial analyses for examples and explanations.
4 Categories Of Plant Assets
Let’s take a closer look at the four categories of plant assets: buildings, equipment, land and improvements. The things we want to discuss are which assets fall into each category and how do we determine the overall cost/percentage of the assets.
- The most popular building assets are office buildings, retail spaces, warehouses and factories. But there are thousands of other types of buildings that can fall under this category, almost all of them specific to their industry. For example, in thoroughbred racing, a horse barn could be a plant asset. In the car industry, a testing or safety facility could be a plant asset.
- The cost of buildings is the sum of any of the following expenses: purchase price, repairs/remodeling, broker commission, closing costs, insurance, permits, architect fee and interest. There could be others, of course, but these are the big ones.
- It would be impossible to list all possible equipments, but you should note that anything from six-figure farm equipment to an office copier can qualify as equipment.
- The costs associated with equipment are purchase price, shipping, taxes (sales and other), insurance, installation, assembly, repairs, testing and plenty of other, smaller costs.
- We can only expand on land so much. Assets include land (raw), vacant lots, approved building sites and any other taxable parcels. The one thing I do want to note, which I mentioned earlier, is that land is the one plant asset that is not depreciable. While land is an inactive investment (as opposed to a factory) it is also very stable. This five-star course on accounting can help you develop a stronger business mindset for managing assets.
- Asset costs pertaining to land include purchase price, property taxes, closing costs, broker fees, excavation and other similar costs necessary to make the land usable.
- When discussing plant assets, improvements are most commonly associated with land use and are even called “land improvements.” Land improvements consists of building things like parking lots, sidewalks, street lights, fences, ponds/lakes, landscaping, etc. But there can also be building improvements, among others: decoration, design, new signs, etc.
- The costs are simply those costs that pertain to each improvement. Whatever it costs the paving company to pave a parking lot, to build a sidewalk, to install street lights, to dig a decorative pond, etc.
Now that you’re ready to expand your business and bring your plant assets up to speed, it’s time to educate yourself on making smart decisions. Get hands-on learning from this top-rated class on real estate investment analysis.