There are 5 fixed asset management mistakes that businesses make when managing their fixed assets that you can prevent today. Fixed assets, the tangible property a business owns and uses in its day-to-day operations, are the backbone of many organizations. From machinery in factories to office furniture and even delivery vehicles, these assets represent a significant financial investment.
Effective fixed asset management ensures you get the most out of these assets, maximizing their lifespan, optimizing utilization, and minimizing financial losses. However, businesses often fall prey to common mistakes that can significantly hinder their fixed asset management efforts.
5 Fixed Asset Management Mistakes Businesses Make
Let us discuss five of the most critical fixed asset management mistakes businesses make and explore practical solutions to avoid them. By implementing these solutions, you can streamline your fixed asset management processes, improve financial reporting, and ensure your assets contribute optimally to your business goals.
Mistake #1: Lack of Regular Asset Audits
One of the most fundamental problems in fixed asset management is the absence of regular asset audits. This can lead to inaccurate asset records, with missing or outdated information. In a scenario where assets aren’t physically verified against accounting records, discrepancies like lost or stolen equipment might go unnoticed for extended periods.
Solution: Implement a Fixed Asset Audit Schedule
Establish a routine for conducting physical asset audits. The frequency of these audits can vary depending on the nature and criticality of your assets. For instance, high-value equipment might require annual audits, while less critical assets could be audited every two or three years. During audits, ensure a thorough physical verification of each asset against its record in the fixed asset management system. Reconcile any discrepancies and update records accordingly.
Mistake #2: Failing to Track Your Assets
In today’s dynamic business environment, where assets might be spread across different locations or even be mobile (think company vehicles), keeping track of their physical whereabouts can be a challenge. Without proper tracking, businesses struggle to optimize asset utilization, locate specific equipment when needed, and prevent unauthorized asset movement.
Solution: Leverage Asset Tracking Technologies
Modern asset management solutions often integrate barcode scanning, RFID tags, or GPS tracking functionality. These technologies allow you to pinpoint the exact location of your assets in real-time, eliminating time wasted searching for missing equipment. Additionally, asset tracking systems can provide valuable insights into asset utilization, helping you identify underutilized assets and optimize deployment strategies.
Mistake #3: Neglecting Preventive Maintenance
Reactive maintenance, where you fix equipment only when it breaks down can be a costly proposition. Unplanned downtime due to equipment failures disrupts operations, leads to production delays, and incurs additional repair expenses. A proactive approach through preventive maintenance is crucial to extend asset lifespan and ensure optimal performance.
Solution: Develop a Preventive Maintenance Plan
Create a comprehensive preventive maintenance plan that outlines service schedules for each asset, considering manufacturer recommendations and historical usage data. This plan should include routine inspections, and minor repairs to identify and address potential issues before they escalate into major breakdowns. By implementing preventive maintenance, you can significantly reduce downtime, optimize asset performance, and avoid costly repairs.
Mistake #4: Not Accounting for Depreciation
Depreciation is the gradual decrease in the value of a fixed asset over its useful life. Failing to account for depreciation in your financial statements can lead to inaccurate reporting of your company’s financial health. Overstating the value of assets paints an inflated picture of your company’s worth, potentially impacting loan applications or investor decisions.
Solution: Establish a Depreciation Policy
Develop a clear depreciation policy that defines the methods (straight-line, accelerated depreciation) used to calculate the depreciation expense for each asset category. Consider factors like asset type, expected lifespan, and salvage value when determining depreciation schedules. By accurately accounting for depreciation, you ensure your financial statements reflect the true value of your assets.
Mistake #5: Not Using Fixed Asset Management Software
Relying on manual spreadsheets to track fixed assets can be cumbersome, error-prone, and inefficient, especially for businesses with a large number of assets. Manual data entry is time-consuming and susceptible to human error, leading to inaccurate records and hindering informed decision-making. A lot of these mistakes listed above can also be difficult to solve for manually and prone to errors too. With a fixed asset management software, the work gets done faster and more accurately.
Solution: Invest in Fixed Asset Management Software
Implementing dedicated fixed asset management software streamlines the entire asset management and tracking process. These software solutions like Rayda offer features like asset tracking, depreciation calculations, preventative maintenance scheduling, and comprehensive reporting functionalities. By automating data entry and record-keeping, asset management software minimizes errors, saves time, and provides valuable data-driven insights for optimizing your fixed asset management strategy.
Effective fixed asset management is crucial for any business that relies on tangible assets to operate. By recognizing and avoiding the common mistakes outlined above, you can establish a robust fixed asset management system that ensures the longevity and optimal utilization of your assets. Regular audits, asset tracking technologies, preventive maintenance plans, accurate depreciation accounting, and dedicated fixed asset management software are key tools to maximize the return on investment from your fixed assets, ultimately contributing to better fixed asset management
Also Read: 5 Ways to prevent ghost and zombie assets from sucking the life out of your business
