Business Acquisition: Definition, Types, Key Players

Any business planning to stay on top of its bookkeeping, accounting, and financial modeling, needs to account for its assets vs. its liabilities. Regardless of the type of business account you’re dealing with, these will be presented on your balance sheet. In this article, we take a deep dive to understand these core business components: What they mean, how they can impact a business, and what to consider before acquiring either. Assets From an accounting perspective, assets are defined as resources or goods a business, individual, or government owns that help generate revenue, add long-term benefits and value to the business, reduce expenditure, or increase its value. Anything with economic value for a company or the ability to increase an individual’s net worth, is an asset. Defining assets in accounting terms takes the element of control into consideration: Assets are also items or resources owners can sell or use to obtain something else of value. The three requirements something must satisfy to be classified as an asset are: It must be something a business or individual has control over. Said control must be given to that business or individual via past actions (e.g., building or constructing an item, an outright purchase, inheritance, etc.) It must have or be able to generate some economic benefit in the future. Some examples of assets are cash and cash equivalents, unpaid invoices, investments, equipment, patents and trademarks, property, etc. Liabilities From an accounting perspective, liabilities are obligations or payments a business or individual has yet to make good on. These may be monetary, or in the form of services yet to be rendered. A liability must have the following three elements: It must be a result of past events and transactions. It must present new obligations for the business or individual (e.g., wages owed to employees). There must be an outflow of valuable resources to settle the debt. All businesses have liabilities, except in peculiar cases where the company only receives and makes cash payments. Liabilities can include loans, salaries, accounts payable, sales taxes, unearned revenue, credit card bills, customer credit, etc. Asset Classification Assets are grouped based on their convertibility, physical existence, usage, and ownership. These classes are current and fixed/non-current assets, tangible and intangible assets, operating and non-operating assets, personal and business assets, fictitious assets, and investment assets. Current and Fixed/Non-Current Assets Current assets consist of funds and items or resources that can be quickly converted to cash (i.e., liquidity), typically within one year. They are also referred to as liquid or short-term assets, and include, but are not limited to, cash, cash equivalents, office supplies, short-term deposits, inventory, marketable securities, and unpaid invoices or accounts-receivable assets. Fixed/non-current assets provide long-term value but cannot be converted to cash as quickly and efficiently as current assets. They are also referred to as long-term assets and include, but are not limited to, patents, trademarks, land property, and heavy machinery and equipment. The value of fixed assets tends to depreciate over time and with use (e.g., cars). Tangible and Intangible Assets Tangible assets are physical in the sense that they can be seen, touched, or felt. These assets are also easy to convert to cash where it becomes necessary for a business or individual to do so. Some examples are vehicles, inventory, and office equipment. Not to be confused with fictitious assets, intangible assets are those assets that exist without the physical element, i.e., they cannot be seen or felt, but have economic value. They are also harder to convert to cash and include logos, copyright, patents, trademarks, etc. Operating and Non-Operating Assets Operating assets are those through which revenue is generated for daily business operations, for example, paying liabilities like wages owed. Such assets include cash, accounts receivable, inventory, and fixed assets. Non-operating assets generate value, but not for the daily operations of a business. In this category, you’ll find things like investment securities, unused equipment, land, or property, etc.  Personal and Business Assets As the name suggests, personal assets are those belonging to private individuals. They are controlled by their owner and do not fall under the company’s purview. On the other hand, business assets are owned by a company and cannot be used for private purposes. Decisions concerning the management of business assets need to be made by the company’s leadership, as these are meant to maintain the economic growth of the business. Fictitious Assets Fictitious assets, like intangible assets, lack a physical element; as their name suggests, they’re not real assets - instead, they’re cash expenditures than haven’t yet been accounted for, but are expected to generate revenue in the future. By definition, fictitious assets have an expiration date: Examples include discounts on shares, promotional and marketing costs, and preliminary costs. Investment Assets These are assets that have the primary purpose of generating a profit and boosting the investment portfolio of an individual or business. Examples of assets in this class are stocks, bonds, and currencies. Investment assets can either be growth assets or defensive assets. Growth assets are those with high potential to bring bigger short-term gains (e.g., property and volatile stocks), while defensive assets provide smaller, but stable, revenue (e.g., debt securities and savings accounts). The Importance of Asset Classification Classifying assets based on their convertibility, physical existence, usage, and ownership is not merely a matter of convenience or unnecessary accounting terms. Understanding the nature of an asset helps business owners and private individuals determine what assets to invest in. For example, knowing the difference between operating and non-operating assets paints a clearer picture of how they contribute to a business’s revenue. The solvency of current and fixed assets must be considered before acquisition in case of inevitable situations that rely on liquidity. When assets are acquired without proper consideration, they can become current or long-term liabilities without warning. Liability Classification Liabilities can be current or short-term, non-current or long-term, and contingent liabilities. Current or Short-Term Liabilities These are debts or obligations due to be paid within a year. Current liabilities come in the form of accounts, bills, and interest payable, bank account overdrafts, short-term loans, accrued expenses, customer credit, customer prepayments, wages and taxes owed, etc. and can be monitored using accounting software. Non-Current or Long-Term Liabilities Long-term liabilities are due to be paid in over a year. Just like current liabilities, they should be closely monitored because they factor into long-term solvency.  These liabilities include, but are not limited to, long-term loans, employee benefits, bonds payable, deferred tax liabilities, capital leases, mortgage payable, leases, long-term accounts payable, deferred revenue income, etc. Contingent Liabilities Contingent liabilities depend on the outcome of an ongoing or anticipated event. These liabilities are generally not recorded until the expected event's probability surpasses 50%. When registered, the liability amount is estimated, not fixed. The primary examples here are lawsuit costs and product warranties. The Importance of Liability Classification Knowing which category liabilities belong to helps entities keep track of their implications: The repayment terms on current and non-current liabilities are essential for creating payment plans in line with their expiry dates. Knowing which category they belong to deters accruing too many liabilities in any one of them. For example, having multiple concurrent long-term loans could easily become overwhelming. Relationship and Differences Between Assets and Liabilities Assets and liabilities coexist and complement each other. Here’s how: Liabilities are often used for purchasing necessary assets (e.g., taking out a loan to buy equipment). Assets generate revenue that will later be used to pay off liabilities, maintaining healthy cash flow. A healthy assets vs. liabilities ratio ensures that liabilities do not outweigh the assets used to pay for them. The more assets you have compared to liabilities, the faster your profit will grow.  Assets are more prone to depreciation than liabilities. Liabilities are generally described as non-depreciable. On the balance sheet, assets appear on the right, while liabilities appear on the left. Asset Benefits As much as they have been established in the previous paragraphs, the benefits of different assets cannot be overemphasized: Owning tangible assets instead of renting them helps save costs in the long run; it also gives you the option to rent them out to others. However, some tangible assets (e.g., machinery) tend to depreciate over time. Intellectual property assets protect their owner from third-party infringement and generate revenue from licensing and transferring those rights. A healthy assets vs. liabilities ratio ensures adequate cash flow. Company culture is an intangible asset that is often overlooked, but it converts to employee retention, and, in turn, revenue generation by minimizing hiring costs and maximizing employee experience. Real estate is the most viable category of assets an individual or business can own, as it appreciates over time and can be liquidated relatively quickly. Assets often outlive their owners and can be part of their estate. Assets contribute positively to the valuation of a business. Liability Benefits In a discourse addressing assets and liabilities, it might seem a bit strange to attribute benefits to liabilities, but the word does not connote only negativity. Some of the merits of liabilities are: Loans increase short-term liquidity, adding value to a business. Liabilities keep businesses and individuals on their toes and aid financial growth, due to the fear of running into solvency issues. Assets vs. Liabilities vs. Equity Equity represents the amount a business is worth once it’s liquidated and all its debts are paid. The equity needs to be positive - if the figure is negative, the liabilities have outweighed the assets, and the business is at risk. The basic accounting equation for the calculation of the equity or net worth of a business is: Total assets - Total liabilities = Equity When a business can pay out its liabilities, the remainder of its assets is referred to as stockholders' equity. The state of equity provides some insight into how the finances of a business have progressed or failed, and the anticipated growth rate and pattern. An increase in equity can result from increased revenue, stock sales, and the addition of capital by shareholders, while a decrease can be due to depreciation in the value of assets and an increase in liabilities. Assets vs. Liabilities: General Terms This section addresses terms related to both assets and liabilities Valuation Valuation is the process of determining what a business would be worth if sold. Valuation may be done on the business as a whole or assets alone. The three major approaches to valuation are the cost, market, and discounted cash flow approach. Asset valuation is a process a business undertakes to determine the value of all the assets it owns. The valuation of its assets can be used for restructuring purposes, audits, or loan applications. Assets can be categorized into tangible and intangible assets for convenience. For tangible assets, valuation methods include the cost, standard cost, market value, and base stock method. The term used to describe asset or liability value is “fair market value,” and it can be both current or projected. Accruals Accruals represent the income and expenditures that have not yet been executed. Basically, it’s what the business owes or is owed that has not been inputted in any financial statements. What falls under accruals will largely depend on the accounting period. For example, machinery repairs can be accounted for at the end of the financial year.

When most people think of banking, they probably imagine services like checking and savings accounts, mortgages, and car loans. However, there is another type of banking that is quite different: Investment banking. Bankers from this branch work in the securities industry and assist companies with increasing revenue by issuing and selling securities. This article will discuss the definition of investment banking, how it works, and present some examples of this financial undertaking in action. Read on! So, What Is Investment Banking? Investment banking is the process of helping companies raise money by issuing and selling securities. This can be done through various means, such as initial public offering (IPO), secondary market offerings, and private placement. This type of bank also helps companies with mergers and acquisitions (M&A), which is when two companies come together to form a single entity or one company absorbs another, respectively. One company can purchase another’s securities through asset sales, stock sales, and cash mergers. Last but not least, the corporate investment banking division can also help companies with restructuring, which is when a company attempts to improve its financial situation through debt and equity restructuring, or corporate reorganization. In short, investment banks and their bankers are the places companies, governments, and high-net-worth individuals turn to for guidance with significant transactions. These institutions can provide businesses with much-needed advice on progressing with financial decisions, investments, and fundraising. Now that you know investment banking's definition, let's discuss how it actually works. How Does Investment Banking Work? To help you understand better how investment banking works, let's take companies A and B as an example. Raising Funds With Investment Banking Let's start with company A, which is looking to raise money to fund an expansion into a new state. It has many alternative funding options at its disposal, one of which is an investment bank. That would mean an investment banker would work with Company A to figure out the type of security it should issue, help with the issuance process, and advise on how to market said security. Further, they would help Company A set up the deal, and negotiate with potential institutional investors. Once the asset is issued, the investment bank would help the company sell it through stock exchanges, over-the-counter markets, and private placement. Investment banks will also help the company with post-issuance activities, such as compliance and reporting. Sometimes, the help with staying compliant with securities laws and regulations is the main reason businesses hire an investment bank to handle the process. Acquisitions and Mergers In another example, Company A might want to purchase Company B; in this case, corporations usually turn to investment banking services for help. For example, Company A might not be sure how much Company B is worth and whether the acquisition will pay off in the long run. This is not always an easy question to answer, and this is where investment bankers, with their experience and knowledge of the current market situation, are invaluable. The bank can also advise Company A on the ideal time to commence the deal. Of course, an investment bank, by definition, will earn more money if the trade amount is higher, seeing as how most of them take a percentage from the transactions they facilitate. Other investment banks may also be working on the other side of this deal, helping Company B sell itself. Proprietary Trading Investment banks will often trade by themselves. This in-house trading is often a vital part of their business, as they not only need to generate profit, but also maintain stability. Therefore, this proprietary trading is always calculated, aimed at growing capital needed for expansions or development, without putting any current assets at risk. Now that you know the answer to “What is investment banking?” and how it works, let's look at some examples. Examples of Investment Banking The most common processes investment bankers participate in are Initial Public Offerings, secondary market offerings, and private placement investment banking. The investors could be venture capitalists, private equity firms, or even hedge funds. An IPO is when a company goes public for the first time - i.e., makes its shares available for purchase for the first time. A secondary market offering is when an investor makes their company shares available for purchase. As you can see, both are part of investment banking, but the process is different. An investment bank will typically serve as a proxy for selling the assets on the market, taking on part of the risk and therefore marking up the stock price for its own commission. After all, the investment bank might lose money if it sells the stock under market value, which might happen, because markets are unpredictable and react unfavorably to indications that the company's fortunes have changed. What Is The Difference Between Retail Banking and Investment Banking? Understanding how investment banking differs from retail banking is based chiefly on the type of clients and level of sophistication.  Investment bankers work with large institutional investors and corporations, while retail bankers work with individual consumers. Investment banking activities include underwriting securities, providing financial analysis, and advising corporate clients. Retail banking activities include providing loans, managing customer accounts, and enabling day-to-day transactions. Some of the largest banks in the world are investment banks; Goldman Sachs, JPMorgan Chase, and Citigroup all fall into this category, and they provide their services for mergers and acquisitions, capital markets, and private equity trading. In Conclusion Now you know what the investment banking industry is and how it works. It’s a vital part of the corporate finance world, so it's essential to understand it - especially if you have just started your new business and are looking for funding. Thanks for reading - we hope this article was helpful! Further Reading: Small Business Banking: Top Banks in 2022 Bad Credit Business Loans Best Small Business Insurance

Since the advent of electronic checking, paper checks have become less common. While banks and financial institutions still process them, knowledge of how they work is ebbing among the population. We simply don’t use checks to the same degree as we did. Indeed, 93% of Americans today receive direct deposits instead of physical paychecks. However, there are still situations in which you need to know how to void a check, particularly when you want to issue checks to employees paid by direct debit or set up direct deposit accounts with vendors.    Instructions to Void a Check Voiding a check is incredibly simple. It involves just writing the word “VOID” on the check itself.  There are two accepted ways of doing this:  Writing “VOID” in large writing on the front of the check, making sure the letters cover all lines but don't hide the check and account numbers Writing “VOID” separately on the signature line, amount box, payee line, amount line, and date line Following are more detailed steps to create a voided check: Step 1: Start with a Blank Check Banks don’t require you to include any additional information on the lines when voiding checks. All you need to do is take out a blank check from your checkbook to proceed.  Step 2: Void a Check with Blue or Black Ink The next step is to take a black or blue ink pen and write “VOID” in capital letters across the front of the check. By writing “void” on a check, you prevent anyone else from filling out the remainder of it and cashing it to a different account.  Make sure that as you write the word “VOID,” you do not cover the account and routing numbers. If you obscure them, bank clerks won't be able to identify your checking account.  Step 3: Make a Copy The last step is to copy the voided check and send it to the relevant party, such as your employer. You should hold onto the original copy to make sure that the check number is not used at a later date.   What Situations Require You To Void a Check? There are many situations in which you may want to cancel a check. Voiding a blank check lets you share your account information while preventing anyone from using the check. Mistakes It is common to make mistakes when writing checks, mainly if you do it by hand. However, you should never throw the half-completed check in the bin. If you do, there is a risk that somebody might find it and cash it with a different bank account from the one intended. Writing “VOID” on it prevents anyone from using it in any way.  Automatic Payments You may also need to void a bill payment check if you set up automatic or recurring payments that are deducted from your checking account. Direct Deposits Lastly, learning how to void a check for direct deposit can also be helpful when you want to get the money directly into your account. Sending a void check to employers lets them view your account details to set up payment.    What Happens if You Don’t Have a Checkbook? If your account does not have a checkbook, how can you provide a voided check? First, you can ask businesses and employers who need your account and routing numbers to connect to your account directly. Many establishments can do this, so you might not need to provide a voided check that could get lost in the mail.  However, if connecting to your account is not an option, you may want to try accessing a preview of your checks online. You may then be able to print these, write “VOID” on them, and send them to the relevant parties. Always check if receivers accept the previews, as it's not always the case. The other option is to get what's sometimes called a “counter check” at your local bank branch. Instead of handing you a large checkbook, they provide you with only one check that you can then void. You may have to pay a fee for this service.  Of course, if you are trying to prove your account details, you don’t necessarily need to use a check. Any formal documentation from the bank should suffice. Banks, for instance, may be able to draft an official letter with your account and routing numbers that you can use instead of the regular voided check.    How to Send a Void Check by Email If you’re trying to void a check via email, don’t send it as a pasted image or an attachment. Instead, do one of the following:  Put it in a password-protected file Create a link to a file in a protected folder Put it in an encrypted file Better yet, send it as a physical copy. That way, there is no risk of a hack.    How to Void a Check Lost in the Mail Voiding and reissuing a check is sometimes necessary, for example, when the check gets lost in the mail. You will need to contact your bank or credit union to do this.  Start by checking your bank statements to see if the check has cleared. If it hasn't, you can issue a stop payment order. This order instructs the bank not to clear the check.  Next, collect the information you will need to speak to your bank. You will require an account number, the exact amount of the check, and the check number. You may also require details of the payee – the person receiving the check – and the name of the person who signed it. You should have this information on your checkbook stubs.  Next, contact your bank directly, either via telephone, online or in writing to tell them to stop processing the check. Most banks and credit unions provide contact information on their credit and debit cards.  Once you contact the bank, they will put the stop payment order into effect. Orders typically last six months to prevent anyone from cashing the check out without your consent. After that period, most banks will not cash the check anyway because it is more than six months old.  Fees Some banks and credit unions allow you to cancel checks for free, but they are few and far between. Most charge fees, sometimes up to $30, to cancel a check that would otherwise be debited from your account. Furthermore, there may be differences in tariffs when you pay over the phone and online.   Voiding a Check in Quickbooks If you use Quickbooks accounting software and you need to void a check, you can. Here’s what to do:  Click Banking and then Use Register, then click on the account that wrote the check. Click on the check entry number that you want to void. Click Edit and then Void Check. When prompted to void the check in the current period, click Yes. Click Record to make a permanent record of the void. Voiding a payroll check in Quickbooks is also straightforward: Click the Payroll Center or Employees, depending on the system you use. Click the arrow to Related Payroll Activities and select Void Paychecks. (If you are not using a payroll service, simply click Void Paychecks). In Show Paychecks From and Through, specify when you wrote the check. Select the paycheck you want to void from the list and click “Void.” Once you click Void, make sure that the amount on the check goes to zero.  Click Done and exit the screen. Wrap Up In this post, we explored how to cancel a check. The process is surprisingly easy, but understanding why you need to do it might be more complicated. You may need to void checks when proving your bank details to utility companies or employers, or when you’ve made a mistake writing them. It is also important to know where to write “VOID” on a check. You can write it in a small script in the amount line, payee line, amount box, signature line, and date line, or in large writing across the front of the check covering all fields except the check and account numbers.