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What is Asset Management? A Guide for Managers

Startups and Fortune 500 companies have at least one thing in common. They have fixed assets that need to be managed. Those assets are tangible pieces of property that the company uses in its operations to generate income by providing goods or services. Whether it’s a single laptop, a piece of manufacturing equipment, or a fleet of trucks, they are valuable economic resources that have a long useful life.

What is asset management?

For those who ask the question “what is asset management?” the answer is simple. Asset management is the process of maximizing the value of a company’s assets. It starts with keeping track of the physical location of each asset. Beyond that, asset managers must properly account for those assets, see that preventive and corrective maintenance takes place, and enact theft deterrent measures.

Imprecise asset management has several negative consequences. When assets are not properly inventoried and valued, the accuracy of financial reports is in jeopardy. Also, the company may end up paying more than it should in taxes or for insurance.

To avoid these problems, and others, here are a few important best practices for asset managers.

Start with an accurate asset baseline

The one thing that is crucial to the effective management of fixed assets is beginning with an accurate inventory. This inventory must include all the company’s assets and their value. Without a current inventory that correctly accounts for each of the company’s assets, all other steps in the management process will always be inaccurate. Therefore, it is essential to conduct a physical count and recording of the assets.

Get ghost assets off your ledger

Ghost assets are those that are on the books as an asset but are no longer usable company property. If an asset has been broken and will not be repaired, it should be removed from the inventory list as well as the balance sheet. Likewise, stolen or sold asset should be removed.

In addition to causing the company to pay more in taxes and insurance, ghost assets can lead to productivity loss because they are not available when needed. For instance, an employee needs to use a laptop that the asset manager thinks is stored in the office in a certain location. If the laptop is not actually there, the person needing the laptop can’t perform their task.

Locate and catalogue all assets

It’s possible that a company may have property that has never been recorded as an asset. These assets must be added when the company’s assets are inventoried. Likewise, when new assets are purchased, the list of assets should be updated. Because it’s important to keep the list of assets accurate, the asset manager must conduct routine inventory checks.

Select the best asset management hardware

The best way to augment a manual inventory is to tag each asset with a unique identifier. This is particularly helpful if the company has multiple, identical assets such as laptops. The identifier may be labels, barcodes, or RFID chips.

The selection of the hardware will depend on several factors. Asset managers must take into consideration the company’s budget, the number of fixed assets to be inventoried, the number of regular inventories conducted, and other uses of the unique identifier.

Select the best asset management software

When it comes to software, the best thing an asset manager can do is to stop using spreadsheets. While spreadsheets can be helpful with calculating things like depreciation, they are far too error-prone. And, errors are exceedingly difficult to identify. Also, when tax rules and regulations or depreciation methods change, it’s difficult to reflect those changes in the spreadsheet.

Moreover, spreadsheets are not integrated with true asset management systems. To save time, avoid the risk of errors, and be able to access more powerful features, it’s essential that the selected asset management software integrates directly into the accounting system. When the integration with the general ledger is seamless, inventory-related data can be easily updated and shared.

What should asset management software keep track of? At a minimum, asset management software must be capable of keeping track of the existence of each asset. It should also be able to track the location of each asset, record maintenance schedules, calculate depreciation, and provide customizable reports. And, it should be scalable, so it can grow as the company’s inventory of assets grows.

Accurately calculate depreciation

It bears repeating that one of the functions of asset management is to ensure the correct calculation of depreciation of all of the fixed assets. A company’s assets are valuable and represent a substantial capital investment. So, when depreciation mistakes occur, they can have costly consequences that include errors in financial reporting and non-compliance with regulatory requirements. Getting an accurate financial picture of a company requires accurate asset records that account for the acquisition, depreciation, and disposal of assets.

Create customized reports

This goes back to selecting the right asset management software. Every company needs to be able to gain instant insight into the state of their assets. This insight helps with tax planning, asset utilization, and the decision to purchase or dispose of assets.

Helpful reports include depreciation reports, transfer and disposal reports, management reports, and tax reports and forms. Depreciation reports provide a clear picture of the current net book value by asset along with the percentage of depreciation taken up to the date of the report. Transfer and disposal reports lists assets that have been disposed of and any related gains or losses. These reports also track the origin and destination of transferred assets. Management reports provide a summary of account balance activity and shows how the asset is tied into accumulated depreciation on the balance sheet. Tax reports produce tax forms for annual filings. Among other things, they include a detailing of depreciation expenses, records of the sale of property, and investment tax credit recapture.

Final thoughts

What is asset management? Asset management is more than knowing where an asset is located. It involves knowing whether the asset exists or not, knowing the value of the asset, and knowing how it’s being depreciated. Asset management also involves activities that can have a huge impact on the valuation of the company and how much taxes the company must pay on its assets. Therefore, it is essential that an asset manager select an asset management software platform that enables them to maintain an accurate inventory while saving time and effort.