As you walk around your business what do you see? You probably see things like computers, furniture, machinery and tools. These are the physical or fixed assets of your business.
Fixed asset management, the process of tracking the location, life cycle and maintenance of fixed assets then reporting their value for insurance and tax purposes is an important process for the financial health of any business or organization. As the business grows many companies struggle to log and report on their fixed assets which causes them to pay more taxes and pay higher insurance premiums as a result. Here’s why managing fixed assets and fixed asset depreciation is such a common challenge and how companies can make it easier.
Managing the fixed asset life cycle
Equipment, furniture and tools are fixed assets that enable business growth. All organizations need these to thrive and do what they do best, regardless of industry. Acquiring the assets is the easy part but what happens after the fixed asset is purchased or leased? What is the process of adding new assets to your asset registry?
Once a new fixed asset has been purchased or leased your business needs to track where it is located. If it is a laptop or a portable machine, how do you keep track of where it is and who has it? Many businesses lose track of what they own or even have items disappear because they have no reliable method of maintaining and monitoring where these fixed assets are.
If an organization does not accurately know what fixed assets it owns then it has a complex, time-consuming problem. For example, there are many organizations that manage their fixed assets inventory and depreciation calculations using spreadsheets. These organizations may also conduct ad hoc inventories to update their spreadsheets. This can lead to gaps in record keeping that quickly reduce the accuracy of your fixed asset inventory. If you lease assets, how do you keep track of lease end dates?
Tracking and depreciating fixed assets can be challenging when the finance team is usually busy with daily activities and navigating things like annual audits or tax audits. In some cases the finance team has to work with other areas of the organization such as the IT department or the operations team as they may have their own records of the fixed assets they manage and use. The process of reconciling these multiple lists adds an extra administrative burden on everyone involved.
This method might be common but it can prove to be expensive in terms of both staff time and capital. Using manual processes like this to manage things like fixed assets uses a considerable amount to staff time that would be better invested elsewhere. Manual processes such as this are one of the most common productivity drains that plague organizations.
The challenge of calculating fixed asset depreciation
Additionally, if fixed assets are no longer in use or have been lost and have not been properly disposed of in accounting records organizations can find themselves overpaying for the taxes and insurance costs associated with them.
All of your assets need to be tracked and depreciated over time according to complicated rules and schedules. Depending on the specific asset involved and the rules and regulations that apply to it, a given asset may depreciate according to a specific schedule or a particular method. And, the tax depreciation rules and calculations might be different.
With the International Financial Reporting Standard 16 (IFRS 16) for leases now in effect, many organizations now also need to manage the related asset and liability for these leases, adding an additional complexity to managing your fixed assets.
How inaccurate fixed asset depreciation results in increase costs
How much does an inefficient, manual fixed asset management process cost an organization? I have seen statistics that suggest that on average, companies are over paying taxes and insurance on 12% of their fixed assets inventory. Assets not listed in the fixed asset inventory are causing depreciation calculations to be too low, causing over-payment of taxes. Mistakes in the calculation of depreciation or failing to remove assets that are no longer in use cause over payment of insurance that is based on the total current value of fixed assets.
Ultimately, an organization can find themselves with a higher than necessary total cost of ownership (TCO) for its fixed assets. An inefficient fixed asset management process can cause an organization to waste capital that would be better used for smart investments that help the business grow.
The costs associated with managing fixed assets this way isn’t solely financial. There’s an opportunity cost associated with staff time and efficiency when they are spending their time determining if an asset exists, when an asset has not been listed in the inventory and whether depreciation is being calculated correctly. Their time is used on these tasks instead of higher value projects such as producing strategic financial analysis for executive leadership.
Additionally, when an organization lacks a strong fixed asset management process the accuracy of financial reports can be called into question. That’s a headache no finance team needs or wants. Indeed, assets that are not closely tracked can go missing or be stolen outright. This consumes additional staff time and costs the organization even more money when those assets must be replaced.
After encountering these issues and challenges, many organizations begin looking for ways to be more efficient and more effective so they can save time and money.
How to simplify and save money
It doesn’t need to be this way. There’s a simpler and lest expensive way to manage fixed assets. With fixed asset software an organization can easily maintain an accurate fixed asset inventory and accurately look after its assets. Using fixed asset software can also save staff time and leave them time to apply their expertise and talent to projects of greater value for the organization.
Using fixed asset software can save staff time and leave them time to apply their expertise and talent to projects of greater value for the organization.
Here are three ways to save time, accurately manage your fixed assets and pay for only those assets the organization actually uses.
Create a complete fixed asset inventory.
Creating and maintaining a complete, accurate inventory of your organization’s fixed assets doesn’t need to be difficult. With bar code readers you can conduct a complete inventory (even if you have multiple locations) and reconcile all of the records at one central location. Creating a single, complete inventory eliminates duplicate data entry, eliminates time reconciling records and saves staff time and headache.
Streamline fixed asset management.
Once you have a complete inventory of your fixed assets you can figure out what depreciation methods apply to each one and determine how to best manage their life cycle, from acquisition through to disposal. Good fixed asset tracking software can play a key role, assisting with everything from calculating depreciation and allocating cost to monthly and year-end financials. It can even store images, warranty documents, insurance documents and insurance expiry dates, providing a single point of reference each of the organization’s assets. With fixed asset software, rather than reactively chasing down information about fixed assets it can all be found in one central, easily managed location.
Invest in fixed asset tracking software.
While spreadsheets are useful and very flexible, they can take your organization only so far. After a certain point it’s just easier and more accurate to invest in fixed asset tracking software because it can intelligently streamline your fixed asset management processes, and much more. Using fixed asset tracking software can give your organization more visibility into its assets, allowing you to minimize your total cost of ownership while simplifying financial and operational workflows.
Managing fixed assets can be complicated as they are subject to a multitude of rules, regulations and depreciation methods while being placed in multiple geographical locations. This is before we get into the challenges of spreadsheets and filing cabinets. There’s a better way to manage your assets. Fixed asset tracking software can ensure cost savings and improved productivity for the organization. Use software to streamline the process of tracking and depreciating fixed asset, making it part of a well-run organization and enabling further growth.
Contact Flexxus to learn more.