Many people, and many businesses for that matter, really do not understand the difference between an asset and a liability. When asked what is your biggest asset most people will say their house. An asset is essentially something that helps put money in your pocket and a liability is something that takes the money out. By this definition, your house is an asset for the lender and a liability for you. Many businesses also do not understand this concept fully.
In 1999 I sold my business to a public company and was hired to manage their services division. Over the next few years, we grew from $8 million to over $32 million per year in revenue. That business was then acquired by another public company and the new board of directors instructed the company to shut down the services division I managed. Annual contracts worth $32 million should have been an asset to the company since they brought money into the business.
However, the business considered the contracts to be a liability since it was shutting down the division and would likely have needed to employ a legal team to defend against a breach of contract lawsuits. In the end, the company paid me to take over the contracts. I eagerly accepted their money but would have paid them to purchase these contracts. One man’s assets are another’s liability.
