An asset is a resource used by a business to create value or economic benefits. It can be cash, equipment and property, and/or a patent. Businesses list their assets in the financial statement or balance sheet. As consequence, assets are subject to accounting rules.
There are three ways to classify assets in a financial statement. The first, groups assets based on how easy it is to convert them into cash (current and fixed assets). The second, considers their physical existence (tangible and intangible assets). And the last one, it’s a class based on usage (operating and non-operating assets).
In this article, we will concentrate on current assets and fixed assets due to their accounting treatment. These types differ on how they record their costs per business cycle. Also, each one has particular management needs. This makes it necessary to keep track of them. Current technological solutions can help with this; we recommend you read our article on “Asset Tracking, Why Should You Care?”. We will show you how this asset classification impacts your operations. It can also help you develop a strategic view of your business.
How to manage your assets?
These assets are converted into cash within a year. These include government securities, accounts receivable, inventory, and raw materials. They are also call liquid or soft assets.
Within this class, tracking inventory is crucial for operations. Businesses keep track of their inventory to manage demand fluctuations. Also, they collect information about market trends for future business planning.
Moreover, current assets can incur both direct and indirect costs. Direct costs refer to the production of goods, be material or labour. They are consider part of the Cost of Goods Sold (GoGS). The indirect costs include expenses generated by distribution and sales of those goods. The share of each type of cost in a business depends on the nature of its operations.
Some of the benefits of inventory management are:
- Demand forecasting
- Price/service negotiations
- Warehousing space demand
- Order fulfilment
These assets help in business operations. They include equipment and machinery, real estate holdings, fixtures, and buildings. They are also called tangible assets and “property, plant, and equipment” (PPE).
These assets have a useful life that spans several business cycles. During that time, these assets will incur maintenance, repair or replacement costs. Besides, assets consume other resources (i.e. fuel costs). Also, accidents impact insurance payments. As a consequence, assets will incur different costs along their life cycle. The best method for a business to account for these costs is using the concept of Total Cost of Ownership (TCO). This information allows businesses to manage their assets along their lifecycle.
Unlike current assets, fixed assets incur costs associated to their wear and tear. These costs are registered as depreciation costs in the financial statement. An accountant calculates the depreciation of an asset under different methods. The book value of the asset is the result of subtracting the accumulated depreciation cost from the original asset cost. The residual or salvage value is what remains after an asset is fully depreciated at the end of its useful life. Also, asset depreciation impacts other costs. Taxes and insurance payments are based on the asset’s book value.
This leads back to asset tracking. An up-to-date inventory of assets ensures that you stop paying for assets you no longer have. These are called ghost assets and represent those lost, stolen or no longer in working conditions.
Equally important, knowing what kind of fixed assets you have allows you to measure their performance or productivity. It also helps estimate your operational capacity. How many goods can I move? Do I need to increase my fleet to transport my goods? How optimal is my operation? These are only a few of the questions that come to mind but represent the broad impact that proper asset management can have for a business.
Some of the benefits of fixed-asset management are:
- Improve operational decision-making through TCO
- Lifecycle management: acquisition, use, maintenance, and disposal
- Asset use optimisation
Benefits of Asset & Inventory Management
|Inventory Management||Asset Tracking|
|Type of asset||Current assets||Fixed-assets|
|Asset's lifetime||<1 year||>1 year; life-cycle view|
|Cost accounting method||Cost of Goods Sold (CoGS)||Total Cost of Ownership (TCO)|
-Warehousing space demand
|-Improve operational decision-making through TCO
-Lifecycle management: acquisition, use, maintenance, and disposal
-Asset use optimisation
How can technology help manage your assets?
New technologies are improving asset management by facilitating asset tracking. These solutions include bar-codes, passive and active RFIDs, and beacons. These represent a broad range of technological complexity. Also, each solution addresses different management needs. Thus, the cost of each solution varies.
For example, in a distribution centre, goods are tagged for identification and monitoring. The main goal is learning when the goods enter and exit the warehouse space. This is done by scanning bar-codes attached to the goods, which creates a registry in a database. These tags suffer high wear and are disposable. Thus, bar-codes are the most cheap solution.
When moving those goods, pallets or containers are use and reuse in the operations. As a consequence, these assets can be tracked with more expensive and durable solutions, like active RFID and/or beacons. These devices send signals to a network to track their location. This signal can be register when the asset crosses a thresholds. It can also provide an estimated positioning within the warehousing space.
Also, your fleet of transport vehicles can use tracking devices to watch its performance in real-time. This provides valuable data about how your vehicles are been used. And, it provides actionable information to improve their performance and safety.
Inventory management and asset tracking are not new concepts. Different industries use different technological solutions to keep track of their assets (see “Asset Tracking, Why Should You Care?”). Companies collect information to understand their financial position and operational capabilities. No two businesses will use the same solutions. Yet, it is fundamental to merge all this information in one place. So users can make informed decisions. To this end, a software solution can help you integrate different information sources. Also, it can integrate with other services and offer a bespoke solution for your operating and accounting needs.
BulbThings is a software platform that makes it easy to manage fixed-assets. It provides you with a competitive edge by integrating with tracking devices and other software solutions. It allows your business to concentrate on your customers and in maximising your bottom-line.