Business assets could help bosses manage cash flow effectively

Optimise or eliminate ghost assets

Ghost assets are those that you bought but are now missing or unusable. A recent survey suggested 74 per cent of bosses are unaware of the ghost assets in their organisation. The direct impact on cash flow here is you will be paying tax, insurance and maintenance costs for assets that are missing/unusable.

Typically, three to 12 per cent of your assets are of the ghost variety. They can be IT assets like computers, hardware and software, or operational ones spanning equipment, machinery and tools.

For small businesses who tend to manage assets in spreadsheets, ghost assets are likely to be ten per cent of your total assets. For example, if your yearly (asset) tax, insurance and maintenance costs are £50,000, then you have the opportunity to save (up to) £5,000.

Small businesses can take a two-pronged approach here – (1) To identify current ghost assets and calibrate tax, insurance and maintenance costs and (2) To work on a short- to medium-term solution to reduce the overall number of ghost assets.

Asset audits can aid small businesses in identifying ghost assets. Audits can be internal or external.

An asset audit by an external agency is a good starting point since such firms do not have the knowledge or know the history of your assets, and are thus able to identify the gaps in your asset register more effectively. A combined approach – a yearly asset audit and a six-monthly audit by internal employees – is an optimal way to reduce your ghost assets.

Extend asset life by maintenance and value appreciation

Some 41 per cent of small businesses take a reactive maintenance approach. “Don’t fix it if it isn’t broken” means you are waiting too long to fix the problem. This also means it is expensive to fix the problem.

Asset maintenance requires a combination of a reactive and proactive maintenance approach. Whilst reactive maintenance does not require planning and is failure-dependent, this means you do not have maintenance contracts, which can save your monthly outgoings. However, the down side is asset failures can be sudden and fixing them can be expensive.

The overall asset down-time is generally higher than proactive maintenance. With proactive maintenance, your long-term maintenance costs are low and it influences the overall health of your assets.

The impact of asset downtime on your bottom line should decide the type of maintenance approach you adopt. Critical assets can be proactively managed whereas standard assets can be maintained reactively.

Maintenance strategies can increase asset life by four to 13 per cent,which means you have the opportunity to impact your expense (to replace ageing assets). For example, if your total asset cost is £500,000 and if you can increase its life by just 4%, you will influence your expenses and your cash flow by £20,000.

It is totally understandable how small businesses overlook indirect cash and cash flow opportunities. Quite often they are resource-constrained and only focus on immediate priorities.

Prasanna Kulkarni is founder and product architect of Comparesoft Ltd

Cash flow is one of the hot topics discussed at the FD Surgery Manchester in November. Find out more here.

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