The foundation of any business involves high-value fixed assets.
These assets require considerable financial investment and determine the long-term operations and future growth of a business. They play a vital role in improving a business’s operational capacity by minimizing hindrances in the efficient execution of workflows. 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.
Managing the procurement, maintenance, and lifecycle of fixed assets is important so the assets operate in the best condition possible and are able to optimize productivity.
This article explores the different kinds of fixed assets and how fixed asset management solutions help improve business processes through fixed asset management.
What is a fixed asset in business?
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, machinery, and equipment. Fixed assets indirectly affect revenue by facilitating everyday operations and aiding the production and administrative processes.
Some major characteristics of fixed assets include:
-> Illiquidity: They cannot be converted into cash immediately.
-> Depreciation: Fixed assets lose value over time and become obsolete due to wear and tear and consistent use–a process defined as depreciation.
-> Not for resale: Businesses acquire fixed assets for long-term use and they are not to be sold to customers.
These assets are classified into several categories. Some fixed asset examples are:
-> Land: Property, developed or undeveloped, that does not experience depreciation, and its value remains the same throughout its useful life.
-> Buildings: This includes warehouses, office buildings, distribution centers, and any operational structures to execute business operations.
-> Machinery and equipment: Any equipment that helps conduct 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.
These categories are not limited to the assets mentioned above. There are several other significant assets that fall into these and other distinct categories.
What are some common business challenges with regards to fixed assets?
Businesses are often faced with hefty costs and the inability to conduct every day operations efficiently because they do not have an accurate record of their fixed assets and are unable to coordinate where the assets need to be placed for optimal uses. For instance, a business with no, or manual inventory records is more likely to experience theft and misuse of fixed assets as compared to one that consistently maintains records.
Also, for example, if a business has 100 chairs but does not know how many chairs are available in different locations due to no record, they may cause disruptions in operations in a location that requires more chairs due to a larger project. Instead, there may be unused and unneeded chairs at another location – resulting in an inefficient and unfavorable situation.
Moreover, a business might experience frequent machinery breakdowns if the machinery 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 that if ill-maintained can pose a risk to the users’ safety. Well-tracked and well-maintained fixed assets help enhance business productivity.
Businesses are also 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.
What is fixed asset lifecycle?
Fixed asset lifecycle is crucial to maintain an asset effectively. Every asset passes through five main stages during its life, including planning, procuring, deploying, maintaining and disposing. These stages help businesses track fixed assets based on the stage of their life and ensure they are functioning optimally.
See the image below to better understand the lifecycle of fixed assets:
How to manage a fixed asset during useful life of fixed assets?
A fixed asset passes through several stages throughout its life–from its acquisition to disposal. 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 help in accurate resource allocation.
To achieve this, fixed asset management solutions are widely used as they monitor each stage of an asset’s lifecycle and strategically track its performance. They provide a streamlined approach to consolidating asset information into one platform that supports multiple workflows, such as procuring new 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 compound annual growth rate of 42.3%. This indicates a global increase in the use of cloud-based solutions for managing fixed assets.
To help you understand, how a fixed asset management solution helps manage fixed assets throughout their life, let’s look at the solution’s functionalities below:
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. 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.
So, the current asset data can be analyzed to gauge accurate demand forecasts. These forecasts help businesses plan their budgets accordingly to ensure they have enough to finance new procurements successfully.
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–for example, its quantity, model, unit price, and expected delivery date. The request can be forwarded to the vendor directly for timely delivery.
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 rtheir 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.
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 check-outs. 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.
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 users to calculate the depreciation of their fixed assets from time to time and record their value to get a clearer picture of a business’s financial condition. Some common methods used for calculating 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.
How can fixed assets be managed using an asset management system?
Modern asset management solutions offer a myriad of capabilties that expedite fixed asset management and allow users to improve their operational processes. These capabilities can include:
– Asset directory: An asset repository that encompasses fixed asset details and serves as a backbone to workflows, like depreciation calculation.
– Barcodes: Track asset movements from one location to another and update asset details in real-time using barcodes.
– Maintenance schedules: Schedule periodic maintenance, or service routines for assets to reduce the risk of accidents and frequent asset replacement.
– Reports: Create detailed reports to centralize information and apply filters and formulas to analyze data.
Fixed assets form the foundation of a business, and are a key determinant of its performance and success, therefore it is crucial to manage and optimize the efficacy of these assets.
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. 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.
Frequently Asked Questions (FAQs)
1. What are the benefits of fixed assets?
Fixed assets are long-term investments that help drive business operations and aid the production process. They help stabilize cash flows, provide tax benefits associated with depreciation, and add to a business’s financial value.
2. What are the challenges involved in managing fixed assets?
Some major challenges involved in managing fixed assets include lack of data accuracy due to manual data recording, difficulties in calculating depreciation, inability to evaluate the financial value of assets, managing asset lifecycle, and staying industry compliant when procuring and disposing off assets.
3. What is fixed asset management?
Fixed asset management is the process of tracking, monitoring, and managing a business’s physical assets, such as land, buildings, and furniture, throughout their lifecycle.
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