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Ghost Assets: Why Should You Care?
Wonder what happened to that laptop you
know you saw around the office last year? Or a desk you’re certain was put into storage? They’re listed on your fixed asset ledger, but are nowhere to be found. Perhaps you feel like you’re going a little crazy because it seems these items have mysteriously disappeared. You’re not alone. These so-called “
ghost assets” haunt the general ledgers of many businesses.
So, what is a ghost asset, anyway?
If you don’t know what a ghost asset is, you’re not alone. In fact, 49 percent of small business owners or managers admit
they had no idea what a ghost asset was, according to the Wasp Barcode
Small Business Accounting Report. Further, 25 percent said they didn’t know how ghost assets impacted their financials.
But before I address ghost assets, let’s rewind a bit. You likely know fixed assets keep a business afloat — anything from office equipment and furniture to bigger ticket items like company vehicles and real estate. These pieces of property are in it for the long-term and are imperative in the daily business of making money.
In many cases, fixed assets are the largest and most important investments a company makes. A lot of cash is spent on company cars and the latest, fastest technology. So, these items should be carefully tracked, right? Wrong. An astounding 12 to 25 percent of assets in a fixed asset ledger don’t exist. These items are on paper, but are not physically “there.”
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When these ghost assets aren’t properly accounted for and disposed of, they indeed
kill your bottom line. And you could end up on the same road as Highland Brewing Company, a fast-growing brewery based in North Carolina. Their wide variety of unique brews grew in popularity, which is good for business. However, Oscar Wong, owner and founder, became frustrated with their
inefficient and inaccurate paper trail that often resulted in the loss of kegs.
“We only charge our customers a $10 deposit for each keg, but if that keg is lost then we lose $95,” Wong said. “We tried to keep records with invoice sheets, but I knew that there had to be a better way.”
He took a number of measures to reclaim kegs from distributors, including a monthly newsletter, with very little success. As a brewery, kegs are obviously key to the beer business. But those kegs were quickly becoming apparitions that were costing the company nine times the value of the deposits received. The implementation of a cost-effective, intuitive
asset management system “took the guess work out of our tracking system quickly lowered our keg loss ratio. We now have accurate data which gives us more credibility and eliminates paperwork errors,” according to Wong.
On average, a quarter of financial, insurance, and tax benefits created are related to ghost assets, altering your bottom line by what is essentially false or due to poor accounting processes. Avoiding ghost assets is crucial for your business to stay afloat.
Ghost assets take many forms. For example, computers become outdated and are donated, a telephone system is replaced, or company-provided phones seemingly “walking off.” Each of these scenarios can be a result of poor manual asset management. But as a small business owner, you may not be savvy about taxes and finances and may not know how to properly handle an upgrade, donation, or investment to avoid new ghost assets. However, doing the legwork to track down and write off ghost assets is worth it, with tremendous financial and legal benefits, which include better insurance for your assets, more cost-effective annual updates, accurate accounting for assets, improved budgeting for the future, and reduced.
How do you remove ghost assets?
Yes, the removal of ghost assets could be easier said than done. Don’t be overwhelmed. Take a deep breath and dig in! An appraisal process is a valuable way to remove ghost assets, which is best done with an automated asset management system. Below are steps
to get you started:
- Perform a physical audit: You must verify that your ledger matches what you physically have on hand.
- Pinpoint ghost assets: If a proper audit is done, ghost assets should be easy to identify.
- Calculate fair market value of audited assets. It’s important to know what your assets are worth, in order to depreciate them correctly on both your ledger and future tax forms.
- Count your benefits: I mention the advantages earlier, but a reminder you’ll appreciate reduced property taxes, increased insurance coverage, and you’ll be in compliance in case of an asset audit. The IRS is not keen on inaccurate asset reports, which could mean heavy penalties for you if your records aren’t correct.
How can you avoid ghost assets going forward?
Once you’ve taken the aforementioned steps, keep it up! Avoid accumulating ghost assets. If you’re a start-up business, you’ll be a step ahead of your competition if you track your fixed assets on a regular basis.
In today’s marketplace, your business needs asset tracking software. When you continue manual processes, your data will be prone to error, which is a waste of time and money. A comprehensive automated asset management program enables your employees to track the location of any fixed asset, virtually eliminating asset loss due to either human error or theft. In turn, your business
will reap the rewards of extending the lifecycle of your investments.
