Welcome to week 16 of the 2020 #BusinessChallenge!
Last week we finished off the Marketing theme and explained the workings of the 1-Page Marketing Plan.
This week we kick off with a new theme. Assets.
Asset Register or Asset List
The asset register or asset list is a critical part of any business. I prefer the name asset register as it entails more than just a list of the assets.
It measures and keeps track of one of the most important, and probably most valuable, parts of a business, the physical assets (and in some instance intangible assets).
Unfortunately, too many businesses ignore this critical component of a successful business or they believe that it is the duty of their accountant to keep it up to date. It’s not anyone else’s duty except yours, the owner of the business.
Sections of the Asset Register
The asset register should contain a few critical sections as per accounting standards, but it should also be built in such a way that it actually adds value to your business.
The most important sections of a value-adding asset register (and not just one your accountant will use for tax purposes) are as follows:
- Class of asset, i.e. Motor Vehicle, Delivery Vehicle, Office Furniture, Computer Equipment etc.
- Date of purchase of the asset.
- The useful life of the asset, i.e. will it be useful for the next 3 years, 5 years or how long do you believe it can be used until it is to be scrapped?
- Unique identifier for each asset, i.e. for Motor Vehicles start with MV001, then the next one will be MV002 and so on. This number can then be put onto the asset with a sticker or engraved to ensure traceability. Larger corporates use a barcode system because of the sheer number of assets they have.
- Depreciation or Wear-and-Tear written off in the past and then for the current year.
- Location of assets, i.e. branch of your business.
- The person who is ultimately responsible for the safekeeping of the asset.
- Full repairs and maintenance schedule of the asset.
- Last summary of the cost of repairs and maintenance spent on the asset.
- Total repairs and maintenance spent on the asset since original purchase.
- The date that the last physical inspection of the asset was performed on and who performed this inspection.
- List of major and minor repairs required to keep the asset in working order.
Think about what else you can add on this list to ensure that it adds value to your business.
What is Depreciation or Wear-and-Tear?
One of the most important parts of the asset register is the depreciation or wear-and-tear which you write off on each asset every year.
The reason it is important is that this “expense” is put under the expenses section on your income statement. A lot of business owners do not understand why it is there as no payments are made for the existence of this expense.
Or have you paid something to generate this expense? Think back to the day you purchased the asset…
The actual purpose of depreciation, apart from a tax benefit, is for you to budget and put that amount aside to replace the assets which you are depreciating. It’s a form of budgeting for the replacement of the asset.
So, if you have depreciation of R50,000 on your income statement, you should be putting those funds aside to replace your assets when they have reached their useful life.
Homework for this week
I want you to compile a proper asset register of all your assets.
This asset register is not the one that your accountant is going to use for your financial statements, but rather one you can work with to make sure your business is operating and using the assets efficiently.
Next week I start showing you what you should be doing with this value-adding asset register.