Fixed Assets

Also known as “tangible assets” or “property, plant, and equipment (PP&E),” fixed assets are items that you need to operate your business and that generate income over the long haul. For example, these assets can include, among other things, land, buildings, manufacturing and office equipment, or a fleet of trucks and cars. Fixed assets can be the largest investment a company makes. Keeping track of them presents particular challenges and requires skilled management.

Ghost and Zombie assets

Without careful oversight, fixed assets can “go missing” or fall into disrepair. These are “ghost assets” — still on the books but lost, stolen, or unusable. Up to 30% of fixed assets in company inventory records are no longer owned. Whether a company has one or multiple locations, ghost assets create problems:

• If they are on the books, you may pay increased taxes and insurance premiums even though the assets don’t exist or are unusable.
• If presumed functional but, when needed, found unusable, you incur additional costs in time and money to repair or replace the asset.
• If they are lost (or non-existent), you waste lots of time and productivity looking for them.
• If they are not tracked or well secured, the probability of theft increases.

Zombie assets are just the opposite: They are physical assets that you have but that do not show up on your accounting and inventory records. Zombie assets present risk:

• If they are not on the books, they are not covered by insurance if they are lost to theft, fire, or some other event.
• If they are not in any of your accounting records, you may be underpaying taxes.
• If they are not in your inventory, they are not being tracked to determine when they may need repaired or replaced. Depreciation is not tracked.

Inaccurate records of fixed assets can lead to risks of non-compliance and problems with corporate financials. Surprisingly, even with so much at stake, 65% of fixed asset data is inaccurate, incomplete, or non-existent.

What can you do?

Eliminating ghost assets and making sure you know what you have and where it is makes sense. Don’t be part of the 65% who have no idea. Accurate inventories and record keeping are critical:

• Physical inventories – regular and consistent inventories that involve both the accounting and facilities departments
• Accessible records – centralized, accessible data reconciled with existing records across the company
• Accurate tags – unique tags for each asset avoiding confusion when an asset needs sold, retired, replaced, or repaired

Choices

While taking inventory, keeping accurate records, and calculating asset deprecation over time is essential, there are several ways to do it. You’ll want to consider the options and choose what is right for you. If you are ready to implement a new process, the most important step is starting with an accurate physical inventory. Record keeping and other elements of effective fixed assets management will follow.

Spreadsheets

Some organizations use spreadsheets, manually entering and updating data. In addition to the usual drawbacks of being error-prone and time-consuming, spreadsheets must contain programmed fixed formulae to calculate depreciation – one more place for significant errors to occur. Spreadsheets also lack the audit trails and history that are features of software systems.

Outsource

Third-party asset management services can conduct an unbiased initial physical inventory. Some services can also offer advice in related areas. Outside service providers may also implement fixed asset inventory software and hardware and give training.

Software

You will have lots of choices when choosing a fixed asset software. Here are some things to consider:

• Scalability – Does it fit the size of your present business? Can it grow as your business does?
• Integration – Does it integrate with your centralized database? Your accounting system? With other products you use, like inventory management, reporting, and project accounting?
• Reports – does it have advanced reporting and deprecation calculation capabilities?
• Support – Does it support the physical requirements associated with barcode readers and labels that you choose?
• Customization – Does the solution provide easy customization as your organization’s needs change?
• Interface – Is the solution user friendly and have easy-to-use navigation?

Too important to ignore

Proper management of fixed assets is too important to ignore. The effects of ghost assets and poorly managed assets have a negative impact on the bottom line. Despite that, many organizations do not take the care they should with this aspect of doing business.

Sage offers a software application that can do the job, Sage Fixed Assets (SFA). It has the ability to track seven books for each asset including separate books for internal accounting, tax, and budgets. SFA also has an integrated product for trackability used with scanners and asset tags to facilitate faster physical inventories of your assets and automated reporting of results.

We have a fixed asset management consultant, certified in SFA, who can work with you to see if this solution meets your needs. Give us a call at 888.421.2004 option 2. We’re happy to help.

Sources:

Michael N. Day and Stephen Talbot, “Data Validation the Best Practice for Data Quality in Fixed Asset Management,” (White Paper) Asset Management Resources

Sage Fixed Assets: Best practices for fixed asset managers (White Paper)

Ghost assets can haunt companies for years