In the business world, fixed assets and their management play a crucial role. Correctly managing fixed assets can increase the bottom line, pre-empt downtime, increase asset longevity, and give valuable insight into how to plan the company's future.
What Are Fixed Assets
Accounting defines fixed assets as long-term physical items or property owned by a company that helps it operate its business. Assets are reflected in the corporate balance sheet as property, plant, and equipment (PPE).
Another way to view fixed assets is that these are what the company needs to make money by operating a service or manufacturing a product. Also called capital or tangible assets, these include the following:
Planned expenses at the early stages of a start-up
Acquired as you scale up
Used as collateral
Those owned up to closure
The assets must be helpful for more than 12 months—the term or period defining its appreciation or depreciation. Keeping track of depreciation is automated by using something like Sage Fixed Assets support.
Some examples of fixed assets are:
Real estate (such as owned office space in condominiums, warehouses, and lots)
Equipment (like air-conditioning and computers)
Ongoing construction work
If you don’t have staff dedicated to asset management, it’s ideal and more cost-effective to outsource this service to a company like Managed IT Services Orange County.
Ways To Manage Fixed Assets
Managing each asset is important because they take up a huge chunk of capital at any given time. There are benefits to having substantial assets. These properties are valuable resources that can be sold or used as collateral to acquire a loan for increased liquidity. That said, below are ways to manage your fixed assets.
Record Business Assets And Their Life Cycle
Businesses should record each asset as they are acquired. From the start, conscientiously assign a value and list fixed assets by any means that can identify the asset.
Doing this can be straightforward when the business is small. However, as the company grows, manually recording each entry may not be feasible. Hence, it’s best to use accounting software to help simplify the process. Moreover, it can be handy regardless of the company size.
In the recording, it would help to complete all details needed to identify the asset like:
These details are necessary, especially when monitoring the assets.
Track Fixed Assets
Since fixed assets are investments, it makes sense to track where they are, whatever the stage of their life cycle. If the company cannot do this, assets and inventory may be misplaced, lost, or stolen.
Equipment, like computers and machineries, for all sites and departments should be tracked and monitored. This also means assigning values to give you an idea of whether downtime can be expected shortly or whether there is a lag in production.
Some equipment requires proper documentation to address compliance issues. Companies that fail to track their assets may be violating regulatory standards. This is especially true in the manufacturing, pharmaceutical, food, and health industries.
Maximize The Return On Investment (ROI)
The asset's condition contributes to productivity, so it’s best to keep these in prime shape with regular maintenance or updates. Catching equipment early in the malfunction is a heads-up for immediate repair.
This proactive action can increase the lifespan of assets like equipment and tools and save the company from more expensive repairs and prolonged downtime.
All assets have a life cycle. Fixed assets, except land, depreciate over time. In addition, wear-and-tear causes equipment, tools, and buildings to lose value. There are many ways to calculate depreciation, but this process becomes more complex and prone to errors and breaches as more assets are added over the years.
Insure Fixed Assets
As you acquire more assets, consider comprehensive insurance that goes beyond the basics. This is your assurance that you can recover fast in case of catastrophic events.
Track And Forecast
Part of strategically managing fixed assets is forecasting when to:
Schedule maintenance and repair
Purchase additional units
Junk or dispose
Use as collateral
In some cases, real estate is used as collateral for expansion loans. Though this uses assets to inject fresh capital, banks and other financial institutions can garnish these if a company defaults on its payables. That said, the business must remain viable even if these assets are lost.
Suppose forecasting is not your core competence, or your firm is managing the fixed assets for several companies. Outsourcing this service to an accounting firm or managed IT service may be smarter and more cost-effective.
Utilize Automated Assets Management Solutions
There are software solutions that effectively manage fixed assets. The choice would depend on the need, budget, availability of manpower, and whether you are comfortable outsourcing the service.
Spreadsheet: At the very minimum, simple businesses may only require a spreadsheet to track its value over time. Assets are not static items, so any change, like loss, sale, and theft, should be reflected.
Asset Management Software: Bigger companies usually use fixed assets support software, so nothing falls through the cracks as individual assets go through the stages from planning to acquiring, using, maintaining, and finally, disposal.
Such software can calculate depreciation and any tax benefits and current assets in an orderly way, making it easy to spot what’s missing. Moreover, it can create reports helpful in planning future acquisitions based on the identified needs. It can also determine which ones to sell or render obsolete. Lastly, it can help prevent fraud by identifying ghost assets and identify overpayments, reducing operating costs.
Managed IT Services: Like asset management software run by the company, managed IT services can track and monitor a company's fixed assets. This ensures that the business will have the support it needs for daily operations and planning future goals.
Managed IT Services and similar companies simplify asset management without the additional expense of purchasing expensive IT equipment and financing the training for staff who will man a dedicated core just for this purpose.
Both asset management software and managed IT Services generate reports that enable the company to make strategic plans to keep and maintain the asset, replace it, or dispose of it.
Managing fixed assets is crucial to help improve productivity and reduce losses from unnecessary downtime, especially for start-ups. Using asset management software can track assets throughout their lifecycle and help with scheduling maintenance, upgrading, or disposal.