The Importance of Fixed Asset Inventory
Fixed assets are also called “Property, Plant, and Equipment” (PP&E) to describe the type of assets that fall under this category. Typical examples are land, building, machinery, vehicles, furniture, computers, and similar assets.
These items are generally of higher value and considered significant purchases in business. Business owners expect to generate revenue from using these items over some time. However, their value diminishes over time because of wear and tear, and they may need to be replaced.
In accounting terms, the diminishing value of fixed assets is called depreciation and is recorded on the balance sheet. The government requires some businesses to report on fixed assets. This is why companies hire accountants to help them with fixed asset inventory.
However, many business owners have simply viewed fixed asset inventory as regulatory compliance. And the benefits of having fixed asset inventory in place are often overlooked. In this post, we will share with you why regularly conducting fixed asset inventory matters.
Reduce Cost and Time
When performed routinely, fixed asset inventory ensures the most efficient tracking of assets. A comprehensive fixed asset inventory process that includes documenting, labeling, and continual monitoring can help reduce cost and time in different ways. Fixed asset inventory can:
• Make performing audits simpler and quicker;
• Prevent overpayment of property taxes and insurance;
• Reduce the risk of paying penalties due to non-compliance with specific legislation; and
• Avert spending money on items the company already has.
Enable Effective Planning and Budgeting
Regular fixed asset inventory provides you with a clear picture of unproductive assets that need to be replaced and disposed of. Tracking and recording the history of assets allows you to make informed decisions on replacing assets as required.
It enables you to plan and budget the acquisition of new assets efficiently. A well-planned maintenance or replacement schedule minimizes incidents of sudden downtimes that require costly emergency repairs.
Overall, having a regular fixed asset inventory helps you allocate resources where they are needed, keeping your business profitable and successful.
Spark initiatives to Increase Office Productivity
Keeping track of your assets helps you see what you have and what needs to be replaced. This can help you decide where to allocate resources to increase office productivity. With the right tools and equipment, your employees can do their jobs efficiently and have more time to focus on other important areas of your business.
This contributes well to your bottom line. Informed planning can make all the difference to the success of your business. It lets you focus on improving profits, reducing costs, and increasing return on investment.
Lower Incidents of Employee Theft
Without a fixed asset inventory in place, you allow unscrupulous employees to steal your assets. They will most likely take those considered “valuable” and easy to bring out, such as computers and media equipment. If such incidents persist, your business may incur losses, leading to bankruptcy.
An up-to-date, accurate fixed asset inventory and recording can make it easier to identify theft and take action in time.
Eliminate Ghost Assets
Ghost assets are assets that are on the books but no longer exist in the company. These assets are either stolen, damaged, or sold but not recorded in your books. Implementing an accurate and solid starting point is crucial to eliminating such assets.
If your numbers are flawed right from the start, it will be difficult to trace inaccuracies. You will need to review and go back to your physical inventory to ensure that all existing assets are cataloged and recorded correctly.
By doing this, you can get rid of ghost assets and generate accurate fixed asset reports. It ensures your company of accurate corporate financials and consistent regulatory compliance.
Uncover Zombie Assets
Unlike ghost assets, zombie assets exist physically in the company but are not recorded in your books. Since they are not recorded in your books, they are most likely not covered by taxes and property insurance.
If you’re not paying taxes and insurance on items you own, you’re putting your company at risk. You may end up losing money and getting in trouble with regulatory compliance.
Fast-track Disaster Recovery
You need to be prepared for any possibility of disaster happening to your business. Having adequate documentation of your assets will allow you to justify your claims with your insurance company and ask for support from the government.
By having an accurate fixed asset inventory, you can expedite the insurance claim process and get your business up and running again in no time.
A piece of advice: Store backups of fixed asset records off site to avoid losing your records when disaster strikes.
Best Practices in Fixed Asset Inventory
Distinguish assets from expense items. Record items that you expect to use for more than a year as assets.
Ensure your assets have labels or tags for easy tracking and to prevent theft and misplacement.
Automate your fixed asset inventory process. Most companies have already resorted to cloud-based asset management software for accurate tracking and accounting of fixed assets.
There are many fixed assets management software to choose from. Choose the right depreciation method that works for your business.
Get your fixed assets insured. Your insurance coverage protects you from huge financial losses when disaster arises or unexpected damage to your assets occurs.
Be aware of your legal and reporting obligations for fixed assets.
By properly implementing a Fixed Asset Inventory Procedure, you can minimize risk and maximize the return on your fixed asset investments. Failure to do so will cause your company to experience misplaced or lost inventory, negligence of regulatory standards, equipment failures leading to low productivity, and more.
Performing a yearly inventory of your fixed assets is necessary to ensure that you have a solid knowledge of what your company owns and how it is recorded in your books. You don’t have to do this alone. Hiring an accountant can make the process easier for you to accomplish.