Fixed assets are a company’s largest capital investment and have a useful lifespan of five to ten years. A robust fixed asset lifecycle management routine focuses on optimizing useful life while minimizing downtime costs. This strategy is called fixed asset management and includes all aspects related to a business’s critical assets.
But why is it important?
Without a proper management routine, companies struggle with unplanned downtime and equipment failure. Consistent asset breakdowns over time could mean failure to meet project deadlines. Such pitfalls result in millions of dollars lost in the form of maintenance, productivity and replacement fines.
A robust fixed asset management strategy helps prolong an asset’s useful life as well as improve performance. Here are some key reasons your organization should implement an asset management routine:
- Reliable audit trail: Fixed assets are meant to last over a long period of time. So it is important to have a reliable audit trail for security and compliance purposes. Tracked records for fixed assets enable you to log asset usage over time which helps to eliminate malpractices. Moreover, a robust management strategy lets you record every asset detail to maintain transparent financial statements to ensure compliance.
- Accurate depreciation calculation: Depreciation is a crucial measure to track. With incorrect asset history stored in the system, you will not be able to calculate accurate depreciation rates.
- Centralized platform: A fixed asset management system enables you to share asset details across multiple locations. This is especially useful for distribution companies that own various warehouses with heavy equipment. Sharing core asset information allows all business associates to stay consistent with depreciation and compliance policies.
How to implement fixed asset management to improve productivity?
Fixed asset management is an actionable approach to increase return on investment and prolong the useful life of assets. In order to attain high asset performance it is important to invest in the right tools. A cloud based software solution enables you to achieve higher accuracy along with efficient asset workflows.
Here are some simple guidelines that can help improve fixed asset performance with longevity, and how a tracking software can help.
Asset acquisition requirements
Comprehensive, accurate and real time asset information is critical for planning a fixed asset business strategy. Up to date asset data leads to an informed decision making process regarding capacity, procurement and disposal. The simple way to maintain updated asset information is to lay down a streamlined registration process.
Start by listing down the various types of assets your company owns. Be sure to structure registration according to asset classification. For instance some fixed assets like buildings and rental properties that have complex maintenance guidelines, need to be accounted for in a specific manner. Once asset information is complete, assign relevant staff to overlook certain assets groups.
Having reliable asset data is the first step towards a successful fixed asset management strategy. Instant access to real time information ensures accuracy and accountability at all times.
Accurate asset valuation and depreciation measures
Fixed assets undergo wear and tear over the years. Sometimes, companies also incur additional expenditure on the upkeep of fixed assets. All such expenses need to be reflected in your accounts for accurate asset valuation.
For instance, asset expenditure can be listed as either a value addition or a new asset linked to the existing asset. Other expenses like maintenance are usually recorded as operating expenses initiated under work orders. Correct asset valuation is crucial for determining a suitable asset depreciation method.
There are several types of depreciation methods available to choose from. However, the method chosen should be representative of the asset services yielded and the nature of business. For accurate depreciation calculation, it is critical to review the method annually to inculcate the recent assessment of the useful asset life.
Regular maintenance sessions
Since fixed assets are going to be in use for a long time, it is important to ensure that they are being serviced in the proper manner. With the proper asset acquisition methods, setting up maintenance should be straightforward. The best strategy is to opt for a preventive maintenance routine so you can lower asset downtime.
Once you have sorted out the fixed assets in groups, lay down performance levels and the level of maintenance required for each item. After this you will be able to plan the specific types of maintenance work associated with each asset such as preventive, reactive, corrective or condition based.
For each service type, you can then list down the resources to contact or whether any spare parts or additional equipment will be needed. Maintenance works can incur huge expenses that need to be accounted for streamlined fixed asset management. Start from the very beginning and put together an estimate of routine service and forecast major replacement costs for the next 5-10 years.
Count, track and reconcile
Robust fixed asset management includes tracking growth and performance over time. To capture how assets evolve with usage, it is important to define some Key Performance Indicators (KPIs). Depending on the metric you want to track you can monitor aging assets, costs, rate of return and equipment failures.
Running a report on KPIs provides insightful information on asset utilization. From here you can investigate a subpar performance and try to replace or upgrade that fixed asset. A timely fix can save you large amounts of unwarranted expenses and optimize useful asset life.
In order to ensure KPIs remain up to date at all times, start taking periodic asset inventories. Set a date for monthly, quarterly or yearly stock updates to identify missing, broken and relocated fixed assets. Having real time information enables you to control asset utilization for a prolonged useful life.
For all the asset information you have gathered, make it a point to reconcile data. The fixed asset register should be matched with the accounting records to ensure all original and depreciation costs are in line with each other. Regular reconciliation also helps to update any discrepancies for a seamless fixed asset management routine.