Fixed Assets – How To Extract Maximum Value

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Strategy

A large chunk of a business’ funds are often used for obtaining what are known as fixed assets – which, according to Investopedia, is “long-term tangible piece of property that a firm owns and uses in its operations to generate income.” It is therefore in a business’ best interest to have good fixed asset management, although this is not always the case. Below are some of the ways a firm can do this.

 

Have a strategy

By having a clear short, medium and long-term strategy for their business as a whole, an organisation can plan and aim for goals that will affect the use of their fixed assets. For example, if a business is planning on expanding as part of their organisational strategy, this will influence their asset management strategy and therefore their asset management plans. A commercial building, for example, may plan on increasing the value of their building by expanding capacity, but in order to do so, they must have a reason to. If in their current situation the capacity is underutilized, then it would not make sense to plan to do this. Having a clear strategy from the organisational level down is paramount to extracting maximum value from a fixed asset.

 

Utilisation

It is one thing possessing fixed assets, but it is another to make sure it is being used efficiently. Think, for example, of office buildings. While having the building itself an asset, it is only a functioning asset if it is generating income, therefore an empty building would be more like a liability, where you would be paying out for taxes without income in return. A step to improve utilisation would be to implement a system such as room scheduling software. By adding an electronic system such as this, the building would be able to increase its utilisation, without increasing its capacity. Think of the times meeting rooms are left vacant when they could be occupied, all because it lacks a centralized system showing which rooms are available and when. If an organisation is able to implement this system, it may mean they could adjust and make space for more tenants, therefore generating more income.

 

Consideration before purchases

Prevention is better than cure, right? Following on from having a strategy, an organisation should consider their return-on-investment before even acquiring a fixed asset. Will it make economic sense to acquire it in line with your short to long-term strategies? Again, using a building as an example, what purpose will it be serving the business in terms of generating income? Many businesses have fallen foul of rapidly expanding without considering the long-term implications of acquiring an asset that cannot easily be turned liquid. By not having idle capacity in the first place, a business can focus on getting the most economical use from its current assets.

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