Fixed asset management

What is fixed asset management?

Fixed asset management is the process of managing fixed assets at your facility. Fixed assets are tangible assets with more than one year of useful life, such as buildings, land, machinery, and equipment.

What are the different types of fixed assets?

There are two main types of assets: tangible and intangible assets. Intangible assets are not traditionally considered part of the fixed asset management process, but it's still important to highlight the differences here to get a holistic view of asset management.

Tangible assets

Tangible assets are physical assets that have a physical form and can be seen, touched, and measured. They have a definite monetary value and are typically used in producing or distributing goods and services. Some examples of tangible assets include:

• Real estate: Land, buildings, and any improvements on the land such as houses, factories, or offices.
• Machinery and equipment: Tools, vehicles, manufacturing equipment, computers, and other physical assets used in operations.
• Inventory: Goods or products held by a company for sale or used in production.
• Cash and cash equivalents: Physical currency, coins, and cash in bank accounts.
• Furniture and fixtures: Office furniture, shelving, display cases, and other business fixtures.
• Vehicles: Cars, trucks, vans, or any other vehicles used for business purposes.

Intangible assets

Intangible assets, in contrast, lack physical substance and are non-physical assets with long-term value. These assets usually represent legal or contractual rights and can provide economic benefits over an extended period. Examples of intangible assets include:

• Intellectual property: Patents, trademarks, copyrights, and trade secrets that protect inventions, brand names, artistic works, or unique processes.
• Goodwill: The value of a business's reputation, brand recognition, customer loyalty, and other factors contributing to its overall worth.
• Software and licenses: Non-physical computer programs, software, and licenses for their use.
• Contracts: Long-term agreements, licenses, or lease contracts that hold value.
• Brands: Brand names, logos, slogans, and the associated brand recognition and reputation.
• Customer lists: Databases or lists containing customer information and relationships.
• Research and development (R&D): Investments in developing new technologies, products, or processes.

What's the difference between asset and fixed asset management?

Asset management focuses on effectively managing assets (tangible and intangible) to enhance their value, increase efficiency, and improve overall performance. It involves making informed decisions about the acquisition or sale of assets, determining the optimal allocation of resources, monitoring asset performance, conducting risk assessments, and implementing strategies to optimize the use of assets.

Fixed asset management is a subset of asset management. It's focused on the long-term use of tangible assets. It involves tracking and recording fixed asset details, performing regular maintenance and repairs, ensuring compliance with regulations, assessing depreciation and valuation, and making informed decisions about asset replacements or upgrades.

Why is fixed asset management critical for maintenance teams?

Fixed asset management is crucial for maintenance teams for several reasons:

• Asset tracking: Effective fixed asset management enables maintenance teams to track and locate assets accurately. By maintaining an up-to-date asset inventory, teams can quickly identify the assets' location, condition, and maintenance history. This information is vital for scheduling preventive maintenance, identifying maintenance needs, and ensuring assets are available when needed.
• Maintenance planning: Fixed asset management allows maintenance teams to efficiently plan and schedule maintenance activities. By comprehensively understanding all fixed assets, their maintenance requirements, and their lifecycle stages, teams can prioritize maintenance tasks, allocate resources effectively, and minimize downtime.
• Cost control: Efficient fixed asset management helps maintenance teams control costs associated with asset maintenance. By tracking asset maintenance history and performance, teams can identify recurring issues and develop effective mitigation strategies. Preventive maintenance based on asset condition and usage data can help prevent major breakdowns and costly repairs. Additionally, proper asset tracking reduces the risk of asset loss or theft, saving on replacement costs.
• Compliance and regulatory requirements: Many industries have specific requirements for asset maintenance and inspections. Fixed asset management ensures that maintenance teams can keep track of maintenance schedules, inspection records, and compliance documentation. Organizations can avoid penalties, legal issues, and reputational damage by staying in compliance with regulations.
• Asset lifecycle management: Fixed asset management allows maintenance teams to optimize the lifecycle of assets. By monitoring asset conditions, usage patterns, and maintenance history, teams can make informed decisions about repairs, replacements, or upgrades. This proactive approach helps extend the lifespan of assets, improve their performance, and maximize return on investment.
• Data-driven decision-making: Effective fixed asset management provides maintenance teams valuable data and insights. By analyzing asset performance metrics, maintenance history, and maintenance costs, teams can identify trends, patterns, and areas for improvement. Data-driven decision-making helps optimize maintenance strategies, streamline processes, and allocate resources more effectively.

What is fixed asset turnover ratio?

The fixed asset turnover ratio is the ratio of net sales to total fixed assets. It's tracked by finance teams to ensure that the assets purchased are returning on their investment (i.e., have a good asset utilization). The finance team then works with operations, production, and maintenance teams to decide if the asset is worth keeping or if a replacement should be purchased.

In the simplest terms, the fixed asset turnover ratio is a measure of the efficiency of fixed asset utilization and is calculated as follows:

Here's an example calculation. Let's assume a company has the following information:

To calculate the average net fixed assets, add the net fixed assets at the beginning and end of the year and divide by 2:

Now, we can use the formula to calculate the fixed asset turnover ratio:

In this example, the fixed asset turnover ratio is 1.82. This means that the company generates $1.82 in net sales revenue for every dollar invested in fixed assets. The ratio indicates how effectively the company utilizes its fixed assets to generate sales. A higher ratio generally shows better efficiency in asset utilization.