How to Save Money by Improving Your Fixed Asset Depreciation Process

Many companies struggle to manage the complexity of fixed assets depreciation. Mistakes may result in unnecessary expenses like higher insurance premiums, penalties, or even higher tax rates. Fixed asset management can be challenging, but it’s crucial for any business. Fixed assets may be one the largest line items on a company’s financial statement, meaning that appropriately tracking the value of these items is essential for gauging the health and value of the business.

Tracking the value of fixed assets over their entire life cycle and reporting this value for tax purposes is a crucial part of fixed assets management. Fortunately, businesses can use Enterprise Resource Planning (ERP) software to stay on track and enjoy better fixed assets management, including more accurate fixed asset depreciation calculations.

What are Fixed Assets?

Fixed assets are assets purchased for long-term use and assets that are not intended for quick conversion into cash or cash equivalents. Examples of fixed assets include land, equipment, and vehicles. Most fixed assets are tangible assets, meaning they have a physical substance, but some intangible assets like copyrights or software are often considered fixed assets, too.

What is Fixed Assets Depreciation?

Critically, since a company tends to hold fixed assets for longer periods of time, the value of these assets fluctuates. Property values may increase over time while the value of vehicles or equipment is likely to decrease with use. Calculating the change in value is an essential part of calculating the value of company’s fixed assets.

Major Hurdles to Calculating Fixed Asset Depreciation

Companies face significant challenges when it comes to managing fixed asset deprecation. Some of the main challenges are:

1. Complexity – One of the major obstacles in calculating fixed asset depreciation lies in the complexity of the process. Fixed assets play a pivotal role in facilitating business growth, regardless of the industry. However, accurately tracking and depreciating these assets over time involves adhering to intricate schedules and methods. Depending on the asset type and applicable regulations, depreciation may follow specific schedules or methods. 2. Lack of Clear Fixed Assets Inventory – Companies with multiple locations or assets that frequently change locations may not have a complete fixed assets inventory that covers all fixed assets. When a company lacks a clear inventory of its fixed assets, it’s very difficult of calculate depreciation accurately. 3. Localized Approach to Fixed Assets Management – Businesses with multiple locations or branches may outsource fixed asset management to regional offices, which often maintain their own records. Reconciling multiple sets of records can be problematic. Many businesses resort to managing their fixed asset inventory and depreciation schedules using spreadsheets or by conducting surveys and updating records periodically. However, this approach often leads to gaps in record keeping, resulting in an inaccurate inventory. 4. Overburdened Finance Teams – The task of tracking and calculating fixed assets depreciation becomes even more challenging when finance teams are already overwhelmed with high-priority budget preparations and annual audits. Manual management of fixed assets consumes a considerable amount of time that could be better allocated to other tasks. In fact, it is one of the most common productivity drains faced by growing businesses. 5. Different Regulations and Depreciation Methods – Different types of fixed assets may be subject to different rules, regulations, and depreciation timetables. This means each type of asset may require different equations for calculating deprecation over time, which adds complexity to the fixed assets depreciation process.

Main Costs of Inaccurate Fixed Asset Depreciation Calculations

Inaccurate fixed asset depreciation calculations can result in overpayments, causing businesses to miss out on entitled deductions. Ultimately, this inefficient process can burden companies with a higher total cost of ownership (TCO) for their fixed assets. Consequently, capital that could have been invested in smart growth opportunities is wasted. Moreover, managing fixed assets in this manner has non-financial costs as well, such as staff time and efficiency. Finance professionals who spend excessive time sorting out the existence and proper depreciation of specific assets are unable to focus on high-value projects, such as ensuring GDPR compliance or providing strategic financial analysis.

A weak fixed asset management practice can undermine the accuracy of financial reports. Poorly tracked assets can also go missing or be stolen, resulting in additional costs and staff time required for replacement.

How an ERP Can Help

Fortunately, there is a simpler and more cost-effective approach to managing fixed assets. By implementing ERP software, organizations can maintain a comprehensive fixed asset register and adequately insure their assets. This solution not only saves staff time but also allows the finance team to focus on projects that bring higher value to the company.

ERPs with fixed assets management capabilities can help your company:

1. Create a Complete Inventory – Generate and store a comprehensive inventory of your company’s fixed assets using your ERP. By using barcode readers, you can conduct a thorough inventory of your fixed assets, even across multiple locations, and automatically consolidate all records in a central location. This eliminates duplicate data entry and saves staff time while reducing headaches.

2. Streamline the Fixed Asset Lifecycle –Fixed asset tracking software helps determine the appropriate depreciation methods for each asset and optimizes their management, including assisting with depreciation calculations, cost allocation, and year-end financials. It can also store digital images of key asset records, providing a centralized reference point for all owned assets. This proactive approach allows the company to plan future investments strategically and maximize return on investment (ROI).

3. Minimize the Total Cost of Ownership – Fixed assets management software provides valuable insights into the status of fixed assets, helps companies avoid overpayments or other penalties associated with inaccurate fixed assets management, and helps minimize the total cost of ownership while simplifying operational and financial workflows.

How We Can Help

At CertiPro, we are experts in all things related to Sage ERP. Contact us to see what Sage Fixed Assets can do for your business.