Importance of Asset Management
Asset management is something every company and even individuals should take seriously. Every company or individual needs to keep track of their assets. In this way the stakeholders concerned will know which assets are available and what can be done to achieve optimal result. We shall look at asset management strategy to apply and achieve result.
The assets owned by companies are categorized into two: Fixed and Current assets.
What are Fixed Assets?
A fixed asset, otherwise known as non-current asset are assets acquired for long-term use.
Fixed assets are not readily liquid; therefore they cannot be converted to cash easily. They are used by companies to produce goods and services.
They are called non-current assets because they have a useful life of more than a year. Fixed assets are things like property, plant and Equipment, otherwise known as PP&E.
Fixed assets are also referred to as tangible assets because they are physical.
Examples of fixed assets include:
- Office Furniture
Fixed assets are not sold or consumed in a company. They are used to produce goods and services.
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What are Current Assets?
Current assets refer to all the assets that a company consumed on the course of operation within a year. They are assets that can be conveniently sold when the company needs cash. Current assets always appear on a company’s balance sheet, a financial statement required to be completed every year.
Current assets include cash and its equivalent, pre-paid liabilities, marketable securities and other liquid assets.
Currents assets are also called Current Account.
What is Asset Management?
The almighty Wikipedia defined Asset managements as the Systematic approach to the governance and realization of value from the things that a group or entity is responsible for, over their whole life cycles, while the Cooperate Finance Institute defined it as the process of developing, operating, maintaining, and selling assets in a cost-effective manner. Most commonly used in finance, the term is used in reference to individuals or firms that manage assets on behalf of individuals or other entities.
Importance of Asset Management
There are so many importance of asset management to a company but below I have outlined the top four importance of it.
1. Asset management allows a company to keep track of all its Assets.
Asset management makes it quite easy for companies to keep tabs on all their assets both Liquid and Fixed. Companies will know where exactly their assets are, how they are being put to use and the changes made to the assets. With this process the recovery of assets becomes very easy for companies and that will guarantee higher returns.
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2. Asset Management identifies and manages risk.
The usage of the company’s assets comes with some risks attached to it. This where asset management comes in to identify and manage risks that arise from the usage and ownership of the assets. With Asset management, companies will always be prepared to counter anything that may rise as the company operates.
3. Asset Management helps in checking ghost assets in a company.
There are cases where assets will be stolen, lost or damaged and a company might still be keeping record of the non-existent assets. With Asset management it is easier to know which asset is missing and the company will stop taking its record.
4. Asset management helps in the accuracy of step-down rates
Assets are checked regularly, this process ensures that the company’s financial statement reflects and kept updated.
How to develop a strategic asset management Plan
The ownership of asset is part of a public or privately owned enterprise. To be able to effectively manage assets, an asset owner needs to develop a strategic asset management plan.
The process of developing the strategic asset management plan is explained below:
1. Assets Inventory
The first thing is for a company owner to count all the assets that he owns. If he is unaware of the number of the assets in his inventory then the assets won’t be managed properly.
The following should be considered when preparing the inventory of a company:
- Total Asset count
- The Location of the assets
- The value of the assets
- Expected lifecycle of each asset
- When asset are needed
2. Calculate the Life-cycle cost
For a business management plan to effectively work, a company owner should take time to calculate the life-cycle of each asset he has. You should not make the mistake of calculating only the initial purchase cost only.
Many costs are sure to increase on the course of the asset’s life-cycle- Maintenance, Condition and even performance modelling and disposal costs.
3. Set Service levels
After calculating the life-cycle cost of all the company’s assets, a company should set the Levels of service. Level of service is knowing the overall quality and quantity, capacity and the different roles that the assets will provide in the company. By practicing this, a company owner will know everything that will be needed to maintain and keep the assets functioning.
4. Practice Long term financial planning
Any asset management method that a company owner adapts should be able to be translated into a long-term financial plan. With long-term financial plans in place, a company owner will be able to assess the feasible objectives and which know ones are to be prioritized.
Benefits of Asset Management
1. Improved acquisition and use of assets
Having an asset management strategy in place helps to improve the acquisition and use of the company assets.
By monitoring the assets life-cycle, a firm owner will be able to know which products are the best and they will improve on their techniques of buying those assets.
2. Improved Compliance
Governmental and Non-Governmental Organizations, including companies are required to submit a comprehensive report on how they acquire and use assets. With the right asset management strategy in place this becomes easy for every company to create a comprehensive report on how they acquire and utilize assets and save to their database. They can easily have access to all the files when they need to compile a report at the end of the financial year.
Individual Asset Management Strategy
For an Individual, the asset management strategy is also the same as wealth creation and management. It is the management of individual investment or estates.
Asset management is the simply a way for companies to acquire, track, manage and utilize their assets – Current or Fixed.
With the right asset management strategy a company will be able to know where the company’s assets are and how they are being utilized.
Asset management also minimizes the chances of recording ghost assets.
What other asset management strategy do you know?
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