The benefits of improved fixed asset management are many, including increased cash flow that results, in part, from reduced expenses. Property taxes often go down because an accurate wall-to-wall inventory typically identifies many “ghost” assets – assets once on the books but no longer there because they have been thrown away, sold, given away or are otherwise no longer being used. Pedone says that, based on her experience, 2 percent to 4 percent of assets on the books are not located after a fixed asset inventory is done.
Cash flow is further enhanced because an accurate inventory results in a reduction in the amount of goods purchased. With effective inventory management, you know what you have and where it is, which reduces needless buying. “You will see your actual purchases go down when you have your inventory under control,” comments Pedone.
Pedone notes that 15 percent to 25 percent of fixed assets on the books are frequently expunged after an inventory because they are “ghost assets” that cannot be found. Property insurance is likewise reduced because business owners now know what they have and what they no longer have. “When you do a physical inventory,” says Pedone, “we’ve seen substantial savings, from 5 to 8 percent on average, in overpayments for insurance premiums for assets that no longer exist. Upon renewal of your insurance policy, you earn an immediate return on investment for your inventory management program.”
Tax reporting also becomes more accurate, particularly if assets are in multiple states, since property taxes vary from state to state. And “lost assets” become found assets because management now learns about assets it never knew about or whose previous locations were unknown.
Another example of “lost assets” are those that cannot be tracked due to misappropriation. According to Pedone, 27 percent of large companies are seeing an increase in theft. With an automated asset tracking solution, assets are tagged with barcodes to allow them to be scanned and automatically be counted. Tagging not only improves the speed and accuracy of the inventory count, it reduces theft. “Tagging is a deterrent. It discourages theft,” notes Pedone.
Time saved is another benefit. “When there is a year-end reconciliation, everybody goes crazy trying to validate this or validate that,” says Pedone. “When the process is ongoing, a great deal of time is saved on year-end reports.”
In addition to time savings, an effective asset tracking solution can help ensure you are compliant with laws like the Sarbanes-Oxley Act (SOX). SOX is an important issue for many companies. The act requires public companies to include an assessment report regarding the effectiveness of their internal controls over financial reporting. Those companies who find themselves in non-compliance with SOX face stiff penalties, including fines, imprisonment, or both.