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What Do Small Businesses Use To Track Their Assets?
Most small business owners can attest that there is a lot more to the “business” side of things than they might have originally expected. Selling donuts, handmade crafts, software, or anything else requires stringent accounting, so as to remain both legally compliant and economically sound. One often overlooked aspect of this is the tracking of fixed assets.
Because, let’s face it: Asset tracking can be rather tedious, boring, and confusing. If you’re unfamiliar with the concept of asset tracking, you’re not alone: 6 percent of respondents to the Wasp Barcode State of Small Business Report said they weren’t sure what their company used to track assets. But frankly, given how important asset tracking is, that number should be zero.
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Fixed or hard assets are the long-term assets on the balance sheet that the company uses in the production of their income, and doesn’t expect to turn into cash anytime soon (as opposed to inventory). You buy a fixed asset to profit from it over the course of its “useful life,” accounting for its decline by using periodic depreciation in both records and for records reported to the IRS.
Financial statements continue to use the original cost of an asset, rather than the current market value of it, even though that asset’s usefulness declines as time goes on. (You wouldn’t pay the same amount for a used toaster as you would a new one, right?) In order to understand the true value of your assets over time, you need to track them.
Fixed assets can be computers, laptops, hard drives, and other electronic equipment. It can be tools of the trade like drills, or transportation like cars and trucks. (One thing it usually is not: land, which doesn’t depreciate over time.) A well-meaning business owner might buy a truck to transport materials, workers, and anything else to a job site, without knowing that he or she has to then account for that truck throughout its time being used by the company. Otherwise, the business risks a ghost asset on its hands.
So what do small businesses use to track their assets? Using the State of Small Business Report, let’s examine the most commonly used methods for calculating the depreciation of assets, among other tasks, and see what’s the most effective and efficient.
Not Sure: 6 Percent
This was mentioned up top, because it’s true: 6 percent of respondents have no idea what their business is using to track assets. That either means they’re not involved with this kind of decision-making, or their company doesn’t track assets at all.
If you’re a business owner, you should know what systems are in place to make sure you’re compliant and making smart financial decisions.
Don’t Track Assets: 11 Percent
Well, we’ll give it to these respondents: At least they’re honest about not tracking their assets. There are a few problems with not doing so at all, however:
- Basic disorganization: What’s an asset and what isn’t? What’s due for maintenance, or for disposal? What assets were recently checked out and are now missing, potentially misplaced or even stolen by employees? Lots of questions arise when a business has no system for tracking their assets, and the mostly costly of these issues is when ghost assets appear.
- Ghost assets: When an asset appears on the ledger but can’t be found in real life, that’s a ghost asset. This can happen as a result of assets being rendered unusable, or going missing, or never being purchased in the first place but marked as such due to an accounting error. At a basic level, this is a problem because if you assume you had a tool on hand ready for a job and suddenly it’s not there, you can’t do your job. But extraneous assets till count towards the company’s tax and insurance liability—which means some companies end up overpaying their taxes up to 20 percent.
- Tax liabilities: If you make a mistake in reporting your assets to the IRS—over- or under-reporting your enterprise value, or mixing up different forms of asset depreciation over the course of the asset’s useful life—you could be forced to pay fines and penalties. Because you have two ledgers, your internal ledger and the one you report to the government, and you can use different guidelines for each, keeping track of what goes on both is crucial. Keep in mind: The IRS can demand the purchase documents for any asset on your depreciation schedule.
Manual Processes (pen & paper): 12 Percent
This very, very old school way of tracking assets is laughably out of date. First of all, the number of accounting errors you set your team up for by using a pen and paper is likely astronomical: Humans make mistakes, and one misplaced zero or decimal point could be the difference between paying hundreds or thousands in taxes on an asset. Secondly, in this highly automated world we live in, continuing to use manual processes for accounting means you’re spending tens or even hundreds of hours each month and year doing something that could be done instantaneously by a computer.
Some small businesses are small enough that they feel they can easily account for all their assets without help. But what happens when you want to grow, to scale up? Having that system in place ahead of time makes scaling up much easier than growing, then realizing you are in over your head and need to backtrack.
Asset Software or System: 16 Percent
In a world where machines, software, and systems are becoming increasingly common, it’s a surprise this number isn’t higher—though we’d expect it to continue rising in the years to come. Automated asset systems are an investment, but the number of manual hours they shave off the asset tracking and auditing process is priceless. By equipping employees with tools like barcode scanners or mobile computers, companies can make check-in and check-out of assets, asset auditing, and maintenance scheduling a matter of scanning a barcode. Many systems can do automatic depreciation for you, allowing you to buy an asset, set its depreciation, and use it until it’s time for disposal.
The best part—which is what makes automated systems an upgrade over using accounting software or spreadsheets—is how your asset database is updated in real-time. Make a change to the asset ledger in one part of the office, warehouse, or world, and you’ll see that change immediately everywhere else.
Another benefit is the digital, easy-to-follow “paper” trail that an asset system leaves behind. No misplaced papers or deleted spreadsheets, so if there is an IRS audit, you have everything you need to back up your case.
Tracking In Accounting Software (Quickbooks): 22 Percent
This is another old school standby, but at least one that’s more understandable than using a notepad. Companies use Quickbooks for all kinds of things, including payroll, tracking sales and income, and simplifying taxes, and managing expenses (which is what asset management falls under).
But you can actually use Quickbooks in conjunction with an automated asset management system, sending bills and invoices between the two applications. And since Quickbooks wasn’t necessarily designed with asset management needs specifically in mind, you might find that a dedicated system is more robust and has more options for you, including more depreciation methods.
Spreadsheet Program (Excel): 32 Percent
This is yet another aging method that has plenty of issues. In some ways, it’s not much better than a pen and paper—it’s just easier to read. There are still reasons to beware the spreadsheet: too many formulas that can lead to errors, undocumented spreadsheets that lead to incorrect or uninformed data entry, inconsistent data entry as a result of multiple people adhering to different input styles, and the lack of an audit trail as spreadsheets are saved over, deleted, renamed, and more.
At this point, it’s best to just upgrade to an automated system to avoid the headaches that come with error-prone spreadsheets.
Other: 2 Percent
Not much we can say about this. Who knows what these folks are up to?
The bottom line: Every business has their system, and for some, a spreadsheet or a pen and pad work fine enough for them. But if you plan on scaling up some day, or if you find that many of your asset ledgers contain errors (which can cost you real dollars in the long run), consider taking this tedious work out of your employees’ hands, put them to work doing things that require real human attention, and let software handle the nitty-gritty of asset management. You’ll be happy you did.
