The stability and profitability of an enterprise are often tied to the quality and condition of its fixed assets.
Although they require a considerable financial investment, they determine an enterprise’s long-term operations and future growth. They improve a business’s operational capacity by minimizing hindrances in asset management. Fixed assets can range from a chair to a fleet of vehicles, but each asset plays its part in helping complete operations efficiently and effectively.Â
Managing fixed asset procurement, maintenance, and lifecycle is important so the assets operate in the best possible condition.
This article explores the different kinds of fixed assets and how fixed asset management solutions help improve business processes.
What are fixed assets?
Fixed assets, also known as capital assets, are typically defined as tangible assets that a business uses for more than one accounting year. These include land, buildings, heavy machinery, and other equipment. Fixed assets indirectly affect revenue by facilitating everyday operations and aiding the production and administrative processes.
Fixed asset management solutions are widely used for fixed asset management as they monitor each stage of an asset’s lifecycle and strategically track its performance. They help asset information into one platform that supports multiple workflows, such as procuring new fixed assets, servicing them, and making reports for data analysis.
As per Statista, the global market for fixed asset management software is likely to grow from $3 billion in 2019 to $5.2 billion in 2024 – a CAGR of 42.3%. This indicates a global increase in the use of cloud-based solutions for managing fixed assets.
Characteristics of fixed assets
| Characteristic | Function |
| Illiquidity | Cannot be converted into cash immediately |
| Depreciation | Assets lose value over time and become obsolete due to wear and tear and consistent use |
| Not for resale | Businesses acquire fixed assets for long-term use and they are not to be sold to customers |
Examples of fixed assets
These assets are classified into several categories. Some examples of fixed assets are:
| Category | Example |
| Land | Property, developed or undeveloped, that does not experience depreciation, and its value remains the same throughout its useful life |
| Machinery and equipment | Any equipment that helps manage the production process and keeps the office running, like computers, printers, laptops, and IT equipment |
| Vehicles | Forklifts, trucks, cars, and any other means of transportation that help complete operations |
| Furniture | Chairs, desks, tables, and cabinets used at offices, or provided to remote employees |
Fixed assets vs other types of assets
When seen in comparison to fixed assets, other types of assets fall into the categories of current assets, intangible assets, and financial assets. These assets can be for short-term use, liquid in nature and may not have a long-term impact on business operations. Here’s how fixed assets are different from other assets:
1. Current assets
Fixed assets and current assets mostly defer from each other in terms of their longevity and use. Current assets are normally used within one year of their purchase to run the daily operations. They can be easily converted into cash and are a part of an enterprise’s working capital.
2. Intangible assets
These are the non-physical assets, such as software, licenses or patents, that are essential for an enterprise to successfully operate. They can be short-term and have a variable lifespan depending upon factors like version updates, or obsolescence.
3. Financial assets
These are the assets aimed at improving and sustaining the operational and financial aspect of operations. Financial assets help increase the worth of businesses. They can liquid easily and can be both long-term and short-term.
Challenges in managing fixed assets
Enterprises often incur hefty costs due to inaccurate fixed asset records that hampers their ability to conduct every day operations efficiently. This eventually turns into the ability to decide where the existing assets are needed the most.
For example, if an entertainment company has 50 bluetooth speakers but does not know how many of them are available in different locations, due to no record, they may experience difficulties in allocating them effectively.
Moreover, a business might experience frequent machinery breakdowns if it is not maintained regularly – causing a halt in operations. This is especially important in sectors like healthcare and construction where users are working with high-end equipment; ill-maintained equipment can pose a risk to the users’ safety. Well-tracked and well-maintained fixed assets help enhance business productivity.
Businesses are also often faced with the problem of not being able to record asset depreciation. Without this information, they remain unaware of the exact value of an asset. This means they have an overstated or understated bottom line, with distorted profit calculations.
Steps to managing fixed assets
Fixed asset lifecycle is crucial to manage and maintain an asset effectively. Every asset passes through five main stages during its life, including planning, procuring, deploying, maintaining and disposing. These stages need to be accounted for to understand and optimize the use of an asset. This optimization in turn helps derive maximum value from an asset and helps in accurate resource allocation.
To help you understand, how you can use a fixed asset management solution to better manage your fixed assets.
1. Planning and procurement
The first stage of managing a fixed asset includes assessing the procurement need. This includes identifying the business areas where the asset is needed and prioritizing procuring the asset in time.
There are two major ways a fixed asset management solution can help plan and procure assets: assessing asset data and initiating purchase orders.
Managers using the system can analyze past asset utilization trends to assess where and what kind of assets are required by the business. This data is insightful in gauging future demand, and plan the procurement budget. For instance, a site manager may assess the frequency of checkouts of trucks and dumpsters at a particular site, recognizing the need to procure new ones to handle the workload.
After planning for the future, managers can then create purchase requests on the system. They can choose existing, or new vendors and highlight the details of the asset to be procured – such as, its quantity, model, unit price, and expected delivery date. The request can be forwarded to the vendor directly for timely delivery.
2. Deployment
The asset deployment stage involves putting assets into an active state once they have been acquired. To start, the assets must be assigned unique identifiers and names for quick identification in the system. Assets are then to be allocated locations to ensure that they are made available where they are required the most.
A fixed asset management solution allows users to assign assets to different locations, departments, and sites to track location. This location-specific deployment helps optimize asset usage, and ensure that assets are not misplaced or lost.
If a business is deploying technical devices, such as computers, or laptops, then the initial setup can be completed next, including configuration and installing the software.
Once this has been done, the assets are to be assigned owners. This way the assets remain in the custody of designated individuals and teams who are responsible fo their upkeep and usage. User assignment minimizes incidents of asset theft and provides insights into who is using the system and why.
The custodians can maintain the assets’ history from the time they are procured to their use at every step. This information is vital to assess usage patterns and asset utilization periodically.
3. Tagging
Asset tagging is the next step and involves designing asset labels for each asset. The already existing barcode templates, available in a fixed asset management solution, can be customized as per the business requirements. The label encodes essential asset information, such as its name, identification number, owner, procurement date, and depreciation. Distinct asset labels can be designed to differentiate and categorize fixed assets.
These asset labels are easily scannable and can store up to 7000 characters of information. Mobile devices can be used to scan fixed assets for frequent check-ins and checkouts.
For example, an operations team requires access to five new portable toilet trailers at an event. The team head can simply scan the barcode of one trailer, bundle the rest of the trailers together, and check them out to the site.
This way users requiring particular essential fixed assets do not have to wait long to be assigned the assets. They can perform various actions on the assets, including reserving them and sending them for service in one click. Barcode asset tracking is a powerful and straightforward way to tag and locate your fixed assets better.
4. Maintenance
Maintaining fixed assets can prolong their lifecycle and ensure that they are always in optimal condition.
A fixed asset management solution allows users to schedule the service of the fixed assets. They can check the availability of assets from the system, assess their current state physically, and send a service request accordingly.
They can also link inventory items to the maintenance of the fixed assets to ensure that the system has the right inventory count. This way, the business never runs out of fixed asset inventory when the actual maintenance is to be performed. Usually, assets in maintenance are not available for other purposes.
Additionally, users can use the system-generated alerts to stay informed regarding recent actions. Whenever an asset is sent for service, the system generates automatic alerts to the concerned individuals, allowing them to take quick action.
5. Depreciation management
Managing the depreciation of fixed assets allows the systematic spreading of the cost of an asset over its useful life years. Depreciation not only presents the value an asset has after its wear and tear, and use, but reflects the financial health of a business.
A fixed asset management solution allows businesses to calculate the depreciation of their fixed assets from time to time and record their value. Some common methods used for calculating asset depreciation include:
- Straight line
- Double-declining balance
- Sum-of-the years digits
- Units of production
Asset evaluation is contingent upon calculating depreciation. Without assessing the accurate value of an asset, a business would fail to maintain updated balance sheets. This inaccuracy is then reflected in a business’s reduced profits.
To better analyze the impact depreciated fixed assets have on a business, users can generate reports. The report details an asset’s depreciation breakdown over an accounting year. This information can be leveraged to assess the value of a fixed asset after depreciation and make the decision to dispose of the asset if needed.
Optimize the use of fixed assets with an asset management solution
Modern asset management solutions offer a myriad of capabilities that expedite fixed asset management and allow users to improve their operational processes. These capabilities can include:
1. Asset directory
An asset repository that encompasses fixed asset details and serves as a backbone to workflows, like records management, and depreciation calculation.
2. Barcodes
Track asset movements from one location to another and update asset details in real-time using barcodes.
3. Maintenance schedules
Schedule periodic maintenance, or service routines for assets to reduce the risk of accidents, and frequent asset replacement.
4. Reports
Create detailed asset reports to centralize information and apply filters, and formulas to analyze data.
Why are fixed assets important?
Fixed assets are a key determinant of a business’s performance and success, therefore, it is crucial to manage and optimize their use and efficacy. They are the value-drivers of successful business operations.
As newer technologies for fixed asset management are evolving, the need to adapt to the changing trends is also increasing. Solutions, such as asset management software are compatible with these changing trends as they offer the most recent capabilities to manage assets.Â
By leveraging these solutions, businesses can ensure that they are not only logging their fixed assets but proactively managing them and optimizing their use for an improved bottom line.
