In this article:
Asset appreciation
It's common for certain assets, like land, to increase in value over time, also known as appreciating in value. When managing financial forecasts, such as in software like LivePlan, you might be tempted to reflect this increase directly in your monthly balance sheet updates.
However, according to Generally Accepted Accounting Principles (GAAP), the recorded value of an asset must remain at the purchase price until the asset is sold. If the asset sells for a higher price than its recorded purchase price, its value is officially increased in your financial records only at the point of asset sale.
While a valuation may predict a gain in an asset's value over time, LivePlan is structured on the assumption that the only authoritative measure of the increase in market value is the sale price. When you re-sell the asset at a higher price, the gain appears in your financial statements this way:
- On the Balance Sheet: An increase in cash reflecting the sale price.
- On the Cash Flow: An increase in cash
- On the Profit and Loss: Reported under "Gain or Loss from Sales of Assets"
Suppose you are entering an asset into your LivePlan forecast and want to represent that it has the potential to increase in value. In that case, you can always add a custom text topic to your plan outline and write about the asset's growth potential there.
Company valuation
We're sometimes asked if LivePlan can help calculate the valuation of a company. This is outside the scope of the app because valuation involves many variables and is very different for start-ups vs. existing businesses. In addition, no matter what method you might use to estimate a future valuation for your company, investors will make their own conclusions based on their experiences.
For a real-world explanation of why valuation calculations can be tricky, read our founder Tim Berry's article, Looking for Investment? Understand Startup Valuation.