Fixed assets are assets that are staples of your business, like property, equipment, and plants. These assets are tangible and depreciable, and typically last for longer than one year.
Understanding the different kind of fixed assets, examples of those assets, and why you need to keep track of them is the first step in ensuring your business is on the right track. After all, if you don’t understand what you’re doing, how can you be successful?
In this guide, you’ll learn about what fixed assets are, why they are important to your business, and how fixed asset tracking software can make a significant difference in the long run.
Once you’ve learned the basics of what fixed assets are, you can then consider how to best manage your company’s portfolio.
What Are Fixed Assets?
Fixed assets are tangible, long-term assets that are purchased to be used in operation of the company, rather than liquidated into cash. While the value of fixed assets depreciates over time due to wear and tear, these assets are used to create financial benefits for a business.
It’s assumed that fixed assets will last for at least a year before being liquidated into cash at the end of their lifecycle. Generally speaking, fixed assets fall under the PP&E (property, plant, and equipment) category of your balance sheet.
Examples of Fixed Assets
A definition doesn’t always do the trick when trying to understand asset management. Fortunately, we’ve included some examples of fixed assets, so you know exactly what you’re getting into. Here are some examples of fixed assets that you might have at your company:
- Buildings and real estate – The land, factories, offices, and other buildings owned by your company.
- Electronic equipment – Computers, company phones, printers, copiers, and any other office electronics your business needs.
- Company furniture – Breakroom couches, office chairs, desks, and any furniture in the office.
- Heavy machinery – The larger equipment that might be present in a factory.
- Vehicles – Company cars, buses, planes, and other vehicles used and owned by the business.
- Intellectual property – Trademarks, copyrights, and patents that could generate income for the business.
Obviously, not every company is going to have all these types of fixed assets. If you don’t operate a factory, for example, the necessity for heavy machinery probably isn’t a requirement. Additionally, if your whole team is remote, you likely don’t have any vehicles as fixed assets.
Why Are Fixed Assets Important?
Learning about the definition and examples of fixed assets is one thing, but why exactly do you as a business owner even need this information? Well, the importance of fixed assets is undeniable, as they represent a core part of your business for several different reasons.
For starters, fixed assets are specifically designed to create financial benefits for the business owner. In fact, in most cases, these kinds of assets are the physical backbone of the company, making up the core functionality of how a business operates on a day-to-day basis.
Beyond that, though, fixed assets are an excellent way for external investors and auditing creditors to gauge the value of your business. If your assets are plentiful and in good orders, it’s safe to say that the company is financially healthy, whereas aging, decrepit assets that are producing little income could be a sign of trouble ahead.
Differences Between Fixed Assets and Current Assets
Fixed assets are obviously not the only kind of assets associated with owning a business. Current assets are another type of asset that operates differently than fixed assets, consistently of more liquid items like inventory, cash, and other financial equivalents.
Here are some of the other differences between fixed assets and current assets in regard to lifecycle, depreciation, and revenue.
Lifecycle
Fixed assets are generally considered to have a longer lifecycle than current assets, lasting at least a year of ownership from the business. Conversely, current assets are designed to be moved or sold more quickly, typically lasting less than one year.
Depreciation
Unlike fixed assets, current assets are not depreciable, which means they won’t lose value over the course of time. Subsequently, current assets will be sold or moved to make a profit or take a loss, depending on the price set by the market.
Purpose
Current assets, in essence, are the assets your business owns that are used as money, rather than actual company property. Financial investments, company inventory, and even cash are considered current assets, as they typically change hands frequently. In comparison, fixed assets are used to generate money and are fixtures of the business in the long run.
Benefits of Fixed Asset Management
By now, you hopefully understand that fixed assets and their subsequent management is vitally important to the success of a business. These assets are critical in the operation of your business and represent a massive amount of your overall value.
As you can tell, it’s imperative that you effectively manage these fixed assets in a way that will optimize that value. Here are some of the benefits to fixed asset management.
- Fewer repair costs – Getting regular status updates on fixed assets will allow you to be proactive rather than reactive to wear and tear, saving you money on repair costs in the long run.
- Better reporting – Fixed asset management software keeps track of all the data related to your assets, so you can get more valuable insights to inform your future strategy.
- Easier compliance – Along with better reporting comes the ability to more effective establish asset compliance with regulatory bodies to avoid fines and legal trouble.
So, what’s the best way to actually manage your fixed assets? Lucky for you, we’ve done the research to help.
How to Manage Fixed Assets
If all this information about fixed assets has taught you anything, it’s about the importance of managing your assets in a comprehensive and complete fashion. Making a list, tracking status, establishing consistent protocol, and regularly auditing your assets will help you ensure that your assets are well-managed throughout their lifecycle.
To be clear, though, an asset tracking spreadsheet isn’t going to cut it. For any hope of effectively managing your assets in a way that won’t create more work than it saves, you’re going to want to get set up with a full-on asset management software.
These platforms are designed to provide you with an all-encompassing infrastructure that displays all the information you could possibly need in regard to your asset management needs. Sure, there is a monthly cost for these platforms, but the asset management ROI is substantial when you look at the bigger picture.
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