What Is Fixed Asset Management? Overview & Best Practices

Whether you're running a small business or a multinational corporation, fixed assets are a fundamental part of your operations. From buildings and machinery to software and office equipment, the management of these fixed assets is critical to your company's success. 

As such, you need a comprehensive understanding of fixed asset management. Not only does it help you to keep an accurate fixed inventory, but it also allows for maximum utilization of your assets, ultimately enhancing operational efficiency.

That's why we've put together a comprehensive guide on utilizing a fixed asset management system. Towards the end of this guide, you'll also learn about RedBeam's asset tracking software and how it can streamline your fixed asset management.

Main Takeaways From This Article:

• Understanding fixed asset management involves tracking, managing, and maximizing value from long-term tangible assets used in operations to generate income, covering activities from acquisition to disposal, and focusing on preventing loss and enhancing utilization and operational efficiency.
• Fixed asset management is important for financial accuracy, compliance with reporting standards, strategic planning, and adherence to tax, insurance, and legal requirements, facilitating informed decision-making.
• Fixed asset management improves asset utilization, aids in cost savings by enabling informed maintenance and replacement decisions, reduces loss and theft, and supports decision-making with real-time asset data.
• Core elements of fixed asset management include fixed inventory tracking for operational efficiency, depreciation calculation for financial health, maintenance logs for optimizing asset performance, and asset disposal management.
• Common mistakes when tracking fixed assets include not maintaining separate records for owned versus leased assets, inaccuracies in tracking depreciation, errors in financial statements due to incorrect record-keeping, and misallocating costs.
• Streamline your fixed asset management with RedBeam to enhance the efficiency and accuracy of fixed asset management through features such as barcode and RFID tracking, automated depreciation calculations, and scheduled maintenance, streamlining the management process.

Understanding Fixed Asset Management

Managing all the moving parts when operating a business can be quite a daunting task. One critical aspect that often gets overlooked is the effective management of fixed assets. Without a solid understanding of fixed asset management and its crucial role within your business operations, you are potentially missing out on opportunities.

What Is a Fixed Asset?

In the business world, fixed assets are long-term tangible pieces of property or equipment a company owns and uses in its operations to generate income. They're not meant to be sold off within the year but are crucial components in a company's operational infrastructure spanning several years.

What Is Fixed Asset Management?

Fixed asset management is a strategic approach designed to manage an organization's physical assets and equipment, tracking their acquisition, use, and disposal. It helps generate maximum value from assets while minimizing associated costs. 

How Does It Work?

Fixed asset management involves the systematic tracking of all fixed assets. Comprehensive records provide detailed information such as purchase date, cost, depreciation rate, location, and condition. This is done using various methods, such as barcodes or RFID tags. Real-time asset tracking enables organizations to prevent loss, theft, or misplacement, ensuring the assets are available when required. 

Evaluating asset performance and cost-effectively maintaining assets are two additional responsibilities of fixed asset management. It identifies less productive or obsolete assets that can be disposed of and plans and schedules regular asset maintenance to increase the asset's life and performance.

Examples of Fixed Asset Management

Fixed assets are invaluable for businesses. Efficient management of these assets is crucial to keeping the business running smoothly.

Let's look at a few examples of asset management in relation to the diverse fixed assets companies own:

• Machinery and Equipment: Your manufacturing equipment is regularly inspected, repaired, and ultimately replaced when needed to keep production running smoothly.
• Office Equipment: Management of office equipment like computers, printers, and copiers may involve planning efficient layouts, regular maintenance, and proper utilization.
• Medical Equipment: Hospitals have to track and maintain critical medical devices and equipment, ensuring they are in good working order and available when needed.

Why Is Fixed Asset Management Important?

Fixed asset management is crucial for maintaining financial accuracy, complying with external financial reporting standards, and strategic planning for the future. It helps in knowing the value of the business, creating realistic budgets, and making informed decisions.

Meticulous fixed asset management also ensures compliance with tax regulations, insurance requirements, and laws against asset misappropriation. Ultimately, well-managed assets serve as a roadmap to a more efficient and profitable future.

Benefits of Fixed Asset Management

Managing fixed assets effectively has a host of benefits that can significantly impact your organization’s bottom line. Let's explore what you can gain. 

1. Enhanced Asset Utilization: It prevents situations where assets are lying idle or under-utilized due to oversight. By regularly tracking and analyzing the use of your assets, you can ensure that they are being put to their best possible use. 
2. Cost Savings: Regular tracking and routine maintenance of assets can help avoid unforeseen repairs or replacement costs and make informed decisions about when to replace them before they become a liability. 
3. Reduction in Loss and Theft: Misplacement and theft of assets can be significantly minimized as your asset tracking will act as a deterrent, considering each item's whereabouts are known and monitored. 
4. Better Decision-Making. Comprehensive and real-time asset data, such as the status and performance of your fixed assets, provide valuable insights that can guide strategic decisions, such as when to purchase, lease, sell, or dispose of assets.

Core Elements of Fixed Asset Management

Now that we've explored fixed assets and why their management is critically important, it's time to illuminate the core aspects of effective asset management.

Inventory Tracking

Maintaining an accurate and up-to-date inventory of fixed assets is crucial not only for operational efficiency but also for ensuring financial health. It helps prevent asset misplacement, optimize utilization, and comply with regulatory demands, thus contributing significantly to the streamlined workflow and financial transparency of any business.

Depreciation Calculation

Depreciation is one of the most important financial reasons businesses track their physical assets. Depreciation refers to the value that a fixed asset loses over time. The IRS allows you to deduct this lost value when calculating your taxes.

To track and write off depreciation, you must document your assets' worth and keep accurate records of how much their worth reduces over time. Businesses often use depreciation schedules to plan how assets will decrease in value. This is a document that charts the object's value over time.

If you're unfamiliar with depreciation, consider how a car's value reduces over time. Generally, a brand-new car is at the height of its value. A five-year-old car will be worth less, and a ten-year-old car less than that. The same principle applies to your fixed assets.

To calculate the depreciation value of an asset, follow these steps:

1. Determine the asset's useful life, cost, and salvage value. The useful life estimate is how long the asset will economically benefit the company, while the salvage value is its estimated resale value at the end of this period.
2. Choose a suitable depreciation method (e.g., Straight Line, Declining Balance, Units of Production, Sum of the Years' Digits) that affects how depreciation expenses are allocated over the asset's life.
3. Calculate the annual or per-unit depreciation. The 'Straight-line method involves subtracting the salvage value from the asset's cost and dividing it by its useful life.
4. Keep accurate records of the asset's cost, useful life, salvage value, current year depreciation expense, and total accumulated depreciation for financial reporting and tax purposes.
5. Regularly review and adjust depreciation calculations if there are changes in the asset's useful life or salvage value, reflecting updated conditions or business needs.

Maintenance Scheduling

Regular maintenance plays a significant role in optimizing fixed asset management. By scheduling and adhering to routine upkeep, business operations achieve a longer asset life and enhanced operational efficiency.

Asset Disposal

When it comes to disposing of assets at the end of their life cycle, consider factors like resale, recycling, or outright disposal. If your asset still has some operational life left, resale could be an optimal choice to generate some extra revenue. However, if resale isn't viable, recycling might be a more sustainable option, especially for electronic equipment. Engaging certified e-waste disposal companies can ensure your obsolete assets are safely recycled and disposed of with minimal environmental impact.

If an asset is completely worn out and holds no resale or recycling value, responsible disposal is paramount. Always follow local waste disposal regulations and employ approved waste management service providers to avoid unnecessary legal and environmental consequences.

Best Practices in Fixed Asset Management

Each organization’s asset tracking system will be slightly different, but here are some tips that any business can benefit from.

• An accurate tracking system will help managers plan better by knowing what their fixed assets are worth and how much depreciation they should expect to incur over time.
• Be mindful of the difference between what you own and what you lease. The former are called “owned” or “capitalized” items, while leased items form part of an organization’s expense. Fixed assets should be owned in order to use them efficiently, but leased assets should be recorded as expenses.
• Keep separate records of fixed assets leased for use by the company and those used solely in other businesses (as this is a contribution to equity). This allows for more precise financial analysis and supports compliance with accounting standards, ensuring an accurate reflection of the company's financial health.
• Track asset depreciation both immediately when it occurs and on an annual basis so you can see how much has been written off and adjust the records accordingly. Regular monitoring of depreciation helps optimize tax benefits and aids in strategic planning for future asset investments or disposals.
• Keep good, accurate, and up-to-date records so you can make better decisions about your assets; this will also help you track costs for tax purposes. Maintaining detailed records enhances operational efficiency by enabling quick access to asset information, facilitating audits, and ensuring legal compliance.
• Conducting periodic audits to ensure inventory accuracy and compliance with your fixed assets is crucial for maintaining the financial integrity of your business. These audits help in identifying discrepancies early, allowing for timely corrections that can prevent significant losses.
• Ensure that staff are trained on fixed asset management practices and software usage to facilitate the efficient handling and oversight of the company's assets. Well-trained employees can accurately track, evaluate, and manage fixed assets throughout their lifecycle, leading to improved asset utilization and cost savings.
• Additionally, providing ongoing support and refresher courses ensures that staff are updated on the latest asset management strategies and technological advancements, further enhancing the effectiveness of your fixed asset management systems.

Common Mistakes When Tracking Fixed Assets

Along with the above tips, keep these common mistakes in mind. In most cases, creating a clear process and training your team will prevent a lot of headaches.

• Failing to keep separate asset management books (one for owned assets and one for leased) can also result in asset mismanagement, leading to inefficiencies in asset utilization and potential financial losses.
• Not tracking the depreciation of each asset over time as it is used not only affects the accuracy of financial statements but also impedes effective investment planning and tax optimization strategies.
• Failing to record information such as purchase price or accumulated asset depreciation, where the asset is currently located, current value, and disposal plans will lead to inaccurate financial statements and can also compromise strategic decision-making related to asset maintenance, upgrade, or replacement.
• Allocating costs into the wrong asset account will lead to incorrect financial statements and can distort the true picture of an organization's financial health, misleading stakeholders and complicating budgeting and financial planning processes.

Streamline Your Fixed Asset Management With RedBeam

We've come a long way from the days of manually maintaining ledgers for fixed asset management. Today, technology plays a transformative role, enhancing efficiency and accuracy in tracking, maintaining, and managing tangible assets.

The introduction of comprehensive fixed asset management software has caused a revolutionary change in this field, significantly simplifying asset tracking and alleviating the risks associated with manual record keeping.

RedBeam, a frontrunner in this arena, is particularly noteworthy for its suite of cutting-edge features. The software provides barcode and RFID tracking, which allows for instantaneous asset location and status updates. RedBeam also supports depreciation calculations, helping businesses record the diminishing value of their assets over time.

These key features undoubtedly affirm RedBeam's commitment to upholding the best in fixed asset management practices.

If you are looking to streamline your fixed assets management, investing in RedBeam's solutions will be a worthwhile move. Try the RedBeam 30-Day Free Trial.

FAQs

Asset Tracking vs. Asset Management: What's the Difference?

"Asset tracking" and "asset management" are often used interchangeably. While the two are closely linked, there is a subtle difference.

Asset tracking refers to tagging or labeling assets, scanning them, and keeping track of their location. Businesses often also track the assets' value, condition, and depreciation. 

Asset management includes asset tracking and encompasses how an organization maintains, replaces, distributes, and collects its assets. Asset tracking is an important component of the larger responsibility of asset management.

Tracking Fixed Assets vs. Tracking Inventory: What's the Difference?

Because they both involve counting and tracking items for a business, the terms “tracking fixed assets” and “tracking inventory” are occasionally interchanged. The important distinction between the two is that inventory is meant to be sold and offloaded from the business, while fixed assets are used regularly by the business. 

Inventory is temporary, but fixed assets are long-term investments. For instance, a clothing manufacturer’s shirts and dresses are in the inventory intended to be sold. However, the sewing machines they use to produce the clothes are fixed assets.