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5 Ways to Move Into a New Era of Asset Management

Fixed assets, which are assets purchased for long-term use in the production of income, range from land and buildings to vehicles and computers. Those in charge of managing fixed assets know that this challenge grows exponentially along with your business, and that job will only get more complex in our increasingly digital world. Manual asset management is no longer an option, too often, human error leads to gaps in reporting that can affect your bottom line, whether from losses in tax savings or assets that go missing altogether in a time of need. To stay viable in the modern era, a combination of technological advances and a better understanding of accounting techniques must be utilized. In order to keep your business running smoothly, we’ve put together a list of best asset management practices:

1. Barcode your assets and create location labels.

Fixed assets normally involve physical inventory that is shared by multiple people. While barcodes are normally a customer-facing technology, they can also be used internally on fixed assets.  These are often your business’s greatest expense, to ensure they are always accounted for. Even diligent bookkeeping sometimes suffers from mistakes and thus creates issues with lost assets. Use barcodes and location labels of your own design (they don’t need to adhere to GS1 guidelines if used internally) to track your asset inventory in real-time and update your workflow to reflect current the locations and statuses of those assets.

“Proper records maintenance means the difference between receiving funding and missing out”

Keeping your assets well-organized can lead to massive savings, and even U.S. government grants. Some companies have found that “proper records maintenance means the difference between receiving funding and missing out,” which translates to hundreds of thousands in excess funds spend and/or grant money lost. Keep things organized with a barcode system, not a manual tracking method, to prevent gaps.

2. Check fixed assets out to employees, don’t just loan them out.

Fixed assets can have high upfront costs, and those investments mean you typically want them to last for at least a year, and often longer. If employees simply took fixed assets without some kind of centralized system in place, those assets could be lost, or damaged without the next person who needs to use it knowing that the asset requires repair. By creating alerts for checked-out assets and maintenance events, come asset checkout time, there won’t be any question as to who had the asset last, what condition it’s in or where it can be found.

3. Conduct regular audits

Conducting regular audits, consider doing so quarterly, is a good way to keep your business in regulatory compliance and to ensure all your financial statements are accurate and in order. There are numerous critical audit procedures for fixed assets, including:

• Account balance accuracy
• Account transaction validation
• Asset evaluation test
• Asset clarification test
• Other auditing tasks such as examining and confirming property deeds, and the cut-off time test, which examines vendor invoices a few days before and after the end of a period.

Having proper evaluations for your fixed assets will help you rest easy if your company is subjected to an external audit that would otherwise cost you dearly in penalties.

4. Eliminate ghost assets

One issue that may cost you during an audit is the presence of ghost or “zombie” assets. Ghost assets are fixed assets that are now unusable, such as broken computers or obsolete software, but remain on your company’s ledger. Sometimes companies are unaware of their ghost assets, and sometimes they don’t realize how costly it can be to keep these assets on the books. Ghost assets can lead to higher personal property taxes and insurance bills, and inaccurate assessments of the company’s value. Ghost assets lead to a loss of tax savings, which could have been the cash cushion that your small business needed to avoid failure. If you have ghost assets, learn how to deduct their remaining costs, and stay on top of them going forward in order to avoid a problem that is too big to handle or write off.

5. Warranty periods and depreciation

Assets will lose value over time as they are used and eventually require upkeep, maintenance and repair. Warranties on your assets can lower the costs associated with maintaining them, which is why it’s important to keep track of your warranties and take particular note of the cost of the warranty, the period of coverage and which assets are covered. Coverage for assets is crucial, since studies have shown that over 50% of equipment fails prematurely even after maintenance work was performed on it. As your assets age, they will depreciate, or lose value. For tax purposes, businesses deduct the cost of their assets as business expenses, but that deduction depends on what the asset is and how long it will last. For example, an asset that costs $50,000 and is expected to last for five years will be expensed $10,000 yearly (assuming a straight-line depreciation). By accurately calculating depreciation according to IRS rules, companies can ensure they receive a maximum return on investment for their asset, and don’t end up relying on an overly-depreciated asset to keep customers happy.

Related Article: 5 Asset Management Best Practices

Fixed assets may be considered low-risk by auditors, but considering they are some of your company’s largest investments (real estate, equipment and software are often costly and necessary for your business to exist, let alone thrive), they require serious attention. By creating and following through on these management practices, often with the help of quality asset management software, which can be integrated seamlessly into your workflow, you will stay on top of a crucial need that will scale with your business. If your company grows, your assets will too, and by then you’ll have the tools and know-how to manage them efficiently and cost-effectively. What practices does your businesses use to best manage fixed assets?