How your Fixed Asset Register impacts profitability

If we asked you how up to date your fixed asset register is, could you tell us? What if we asked the person who controls your accounts? It may seem like a technical concern, but the fixed asset register forms part of a broader overview of how the company is doing. It is also an important element of the company’s accounting records – which directors are legally responsible for maintaining.

Over a series of six blogs, we’ve been considering a key question: is your business as profitable as you think? To make the best decisions possible as a business leader, your fixed asset register should be kept up to date. Here’s why.

 

Does your accounts lead regularly provide you with an up-to-date Fixed Asset Register?

If the answer is a blank ‘No’, or a ‘What’s that?’ it’s not a great sign!

The fixed asset register is a list of all the assets a business owns – computer equipment, for example, cars and vans, or machinery, to name a few. The register contains details of:

  • What the item is
  • The purchase date
  • Purchase cost
  • The supplier
  • Rate of depreciation

Some businesses choose to include other information such as maintenance schedules, although this is not essential.

The key thing that needs to be updated is depreciation. If your accounts person doesn’t regularly depreciate assets, then it’s out of date and doesn’t give you a true picture of the business assets’ net book value.

 

Red flags to look out for

If your assets are not regularly being depreciated, it raises the question of what other tasks are left unaddressed? Granted, for many businesses, the fixed asset register really comes into its own at the end of year accounts. However, good financial housekeeping is a year-round job.

 

Typical errors with depreciation

It’s easy to make errors when it comes to depreciating fixed assets. The person responsible for your books could miscalculate, use the incorrect rate of depreciation or the incorrect method. They could even forget to do it altogether!

 

  • Over-depreciated assets could make your profits look worse than they are. This isn’t helpful if you want to make effective decisions about large purchases, hiring staff or any other big changes.
  • Under-depreciated assets, or assets not depreciated at all could make your profits look better than they are. The business could be worse off than it appears and leaves you, as the business leader, in the dark.

 

What it means for the business

Fixed assets are vital to the operation of most businesses. If you don’t have an accurate and up to date record of what the fixed assets of your business are, and their net book values, then you cannot be confident about the profitability of your business.

Businesses grow, staff responsibilities expand; what started as some simple bookkeeping morphs into a much bigger task. Sometimes, the people who begin a start-up journey aren’t always the right people to take the business forward. Artemis Clarke helps rapidly-expanding businesses find finance professionals that have the experience to support them. Not just to help them survive, but to help them thrive – and reach the potential they’re aiming for.

Speak to us about how the right financial help could make a difference to your business. Call 0117 244 1891 today.

 

Was this post helpful? Download our guide ‘Why your business isn’t as profitable as you think’ for more insight into key financial reports.