Companies invest significant capital in fixed assets such as office equipment, heavy machinery, vehicles and real estate. These assets play a critical role in how businesses generate revenue and meet the needs of customers. That’s why it’s so important to manage fixed assets carefully — they are essential for success. Here’s what you need to know about managing fixed assets to maximize efficiency, minimize the risk of accounting errors and keep track of assets throughout their lifecycle.
What Is a Fixed Asset?
Businesses typically have two main types of business assets: current assets and non-current or “fixed” assets. A fixed asset is an asset acquired by a company in order to generate revenue have an expected useful life of at least a year — unlike current assets, such as accounts receivable and inventory, which are expected to be converted into cash within less than one year. Cash is also a current asset. Examples of tangible fixed assets are real estate, heavy machinery and computers and vehicles. Intangible assets include copyrights, trademarks, patents and other forms of intellectual capital. Tangible fixed assets are sometimes listed as “Property, Plant and Equipment” (PPE) on a company’s balance sheet.
Fixed Assets vs. Current Assets
|Fixed Assets||Current Assets|
|Easily and quickly converted to cash||No||Yes|
|Useful life||At least 12 months||Less than 12 months|
|Depreciable||Generally, yes. Land is an exception.||Sometimes|
What Is Fixed Assets Management?
Fixed assets management is the process of recording and tracking long-term assets over their entire lifecycle, from acquisition to disposal. Companies must maintain accurate records to ensure compliance with accounting standards and reporting requirements. Examples include:
- Documenting the total acquisition cost of the asset, including shipping, installation and related fees, as well as its estimated useful life, maintenance requirements and service history.
- Recording depreciation expense applying a consistent depreciation method and schedule. Tracking the status of fixed assets, such as transfers between facilities, divisions or subsidiaries.
- Logging the financial impact of upgrades and other actions that increase an assets value.
- Recording asset impairments due to accidents, natural disasters, thefts or other event that decreases value.
- Accounting for the sale or disposal of fixed assets, including any gains or losses incurred.
Fixed Assets Management Explained
Fixed assets management involves both accounting and operational processes. Fixed-asset accounting records changes to status and book value of each fixed asset throughout its life cycle:
- Acquisition, including shipping, installation and/or set up fees. Depreciation, an accounting method that spreads the acquisition cost of a fixed asset over multiple accounting periods. This smooths out the effect of a fixed asset purchase, avoiding a sudden increase in expenses that might skew financial results, while allowing the company to reduce tax liability by deducting the expense over time.
- Maintenance, including upgrades and impairment if appropriate.
- Transfer and/or Disposal, including any loss or gain on the sales of an asset.
Fixed asset management’s operational processes aim to optimize the use of fixed assets to maximize efficiency and income. This typically includes keeping a central register of all fixed assets, with the date they were put into service and estimated useful life. An asset record should also contain warranty information, maintenance manual and schedule and service history, including upgrades and repairs. It may also involve keeping track of the location of fixed assets to ensure proper oversight and protect against theft.
Why Is Fixed Asset Management Important?
For many firms, fixed assets represent a considerable investment and generate much of a company’s revenue. Therefore, managing fixed assets to maximize the revenue they generate is key to business success. Managing fixed assets effectively can also reduce maintenance costs, help prevent unplanned downtime, equipment failure, or theft, and reduce the risk of accidents and legal claims. For large companies, avoiding these issues can protect revenue and save millions of dollars. Improving the efficiency and reliability of machinery, vehicles and other equipment through effective fixed asset management can reap rewards in the form of:
Minimizing the ongoing cost and maximizing the income from fixed assets can contribute to higher operating margins, especially for a company with a large asset base.
Greater customer satisfaction and customer retention.
Fewer problems with equipment used for customer projects can contribute to greater customer satisfaction, which means they’re more likely to remain customers over the long term.
Less likelihood of compliance or safety problems.
Maintaining machinery correctly improves reliability and reduces the risk of noncompliance with safety or other regulations. Noncompliance can incur significant costs due to fines and lawsuits.
Lower maintenance and repair costs.
Tracking and following maintenance schedules can help companies avoid unplanned downtime, reduce expensive repairs and extend the service life of equipment.
A reputation for operating efficient and reliable equipment can enhance a company’s overall image. In turn, this can make it easier to hire and retain high-quality employees.
Improved reputation with investors.
Because effective fixed asset management enhances profitability, it can potentially lead to lower costs related to obtaining capital earmarked for business growth.
Key Features of Fixed Asset Management Software
Fixed asset management software helps companies track assets over their entire life cycle, from initial acquisition to sale or disposal. Ideally, the software should also automate financial processes such as depreciation, either by embedding these capabilities with the software or by integrating with a company’s accounting system. Here are some of the key features of fixed asset management software.
Logs all assets.
Fixed asset management software provides a complete and accurate log of all the company’s fixed assets in a central register, with asset IDs, barcodes and other tracking details.
Tracks key asset life cycle events and transactions.
Fixed asset management software tracks information for each asset over its service life, including acquisition date and original purchase price, installation and transportation costs, date of first use, estimated useful life, expected and actual maintenance and repair costs.
Automatically calculates depreciation.
Fixed asset management software should automatically calculate depreciation over the asset’s expected lifetime. It should enable companies to choose the most suitable depreciation method and calculation schedule (monthly or annual).
Tracks asset disposal.
Fixed asset management software records the disposal of each asset, with dates. It maintains information such as whether the asset was sold, retired or scrapped, together with any returns from the disposal.
Dashboards and reports.
Fixed asset management software provides dashboards for monitoring key metrics, as well as customizable management reporting.
Benefits of Fixed Asset Management Software
Fixed asset management software can help companies make the most of their assets, eliminate repetitive manual accounting and avoid costly errors. Even small companies with fewer assets can realize considerable benefits by using fixed asset management software, rather than tracking fixed assets manually in spreadsheets. Key fixed asset management software benefits include:
Faster, more informed decisions.
Companies can make faster, better-informed decisions about fixed asset acquisition, deployment and disposal because they can see at a glance the company’s full range of fixed assets, their cost base, where they are in their life cycle and where they are deployed.
Automating manual processes.
Fixed asset management software saves time and increases accuracy by automating time-consuming and error-prone procedures such as depreciation calculations and lease accounting. Software also can reduce the potential for user error when recording asset redeployment and disposals.
Eliminating ghost assets.
Ghost assets are assets that the company no longer holds or that have become unusable — but still show up in company records. As a result, a company may be paying taxes or insurance for assets that it doesn’t own. Companies are particularly exposed to this risk if they rely on manually updated spreadsheets for asset tracking. Software that automatically records each step in an asset’s life cycle can greatly reduce the problem.
By keeping accurate records and ensuring timely maintenance, repair and replacement of fixed assets, companies can improve compliance with accounting standards, health and safety regulations, and other legal and regulatory requirements.
Better business insights.
Leading solutions provide a wide range of reports that help companies quickly and easily identify trends and emerging problems.
Choosing the Best Fixed Assets Management Software
The right fixed asset management software can reduce business costs and help businesses manage fixed assets more efficiently, leading to improved income generation, customer satisfaction and business success. Here are some key steps toward choosing the best software for your business.
- Understand business needs: The first step when choosing fixed assets management software is to gain a good understanding of your business needs. Companies with complex manufacturing operations across multiple locations typically need software that enables them to quickly and easily report on the state of fixed assets in each location and across the business as a whole. Businesses that are gradually replacing aging machinery and other expensive assets may look for software that calculates depreciation and alerts them when it’s time to start the disposal process. Many companies need to record and track equipment leases. Businesses with a large number of fixed assets across multiple locations may want to consider a barcode-tagging system that can be used with mobile devices.
- Examine the automation potential: The next step is to think about the level of automation you need. For example, do you want your software to send emails to people who don’t return equipment? Do you want to schedule monthly or annual depreciation reports?
- Think about integration: For many companies, a further important step in the selection process is to examine the potential for integration with other business software. Leading solutions integrate with accounting software so that fixed asset acquisitions and disposals can be automatically included in financial reports without user intervention.
- Analyze budget considerations: Budget considerations are a key step in any selection process. One approach to setting a realistic budget is to estimate the cost reductions and profit gain you could reasonably expect from improving fixed asset management.
Are you still using QuickBooks as your fixed asset accounting software?
Manage Your Fixed Assets With NetSuite
NetSuite’s comprehensive fixed asset management solution helps companies manage the entire asset life cycle from acquisition to disposal — without relying on spreadsheets and time-consuming manual accounting processes. NetSuite software enables businesses to maintain a detailed central register of both tangible and intangible assets across multiple locations. You can automatically schedule monthly depreciation calculations, as well as amortization calculations for intangible assets, using standard templates or customized scenarios. Companies can also automate lease payments and ensure compliance with lease accounting standards. NetSuite helps companies identify ghost assets so they can stop paying to insure assets no longer in use. With comprehensive reporting capabilities, companies can quickly analyze costs, depreciation and amortization, lease expenses and other data for any operational area.
Effective management of fixed assets, such as machinery, vehicles and facilities, can make a significant contribution to business success. Fixed asset management software can help companies get the most value from their fixed assets with minimal manual effort, resulting in increased income and greater customer satisfaction.
Fixed Asset Management FAQ
How do companies manage fixed assets?
Typically, fixed assets are tagged with a number or barcode that links to an entry in the company’s fixed asset register. Transactions and activities related to each asset — acquisitions, disposals, upgrades/repairs, thefts, accidents and depreciation/amortization — are all recorded on the fixed asset register. Companies increasingly use fixed asset management software to manage their asset register, largely because it provides a more automated and less error-prone method than manually tracking assets in spreadsheets.
What is the role of a fixed asset manager?
The role of a fixed asset manager includes maintaining the fixed asset register, recording all changes to and movements of fixed assets, calculating depreciation and lease payments, accounting for asset disposals, and analyzing and reporting on the costs and income related to fixed assets.
What is a fixed asset process?
The fixed asset process encompasses all the steps involved in acquiring, deploying and disposing of assets. The process typically involves six steps or facets:
- Decide to acquire the asset.
- Acquire the asset.
- Maintain the asset.
- Depreciate the asset.
- Retire or dispose the asset.
- Report on the asset.
What is asset management?
Asset management is a broad term that can refer to managing various types of assets. The goal of asset management is to increase the capital or income of an enterprise. This can involve trading financial assets, such as stocks and bonds, or managing tangible assets, such as real estate.