Here is a simple question you should be able to answer quickly – how much asset do you own in your small business? No, you cannot look at your balance sheet statement to find out the value of total assets. I am talking about the inventory of everything you have in your business. I bet most small business owners do not really know what they own. And yet this is one of the places where they spend lot of money.
When a business is first started the owners spend significant amount of money to purchase number of items to run their business. These are the items that comprise your asset base and go into the “assets” section of the balance sheet. They range from computers, software, machinery and even small office supply items. The business owners probably have a good idea of the amount of assets purchased in the beginning, but as business grows and assets are purchased and retired they start losing track of them.
This would be a mistake. Keeping track of assets is not only necessary to get tax deductions on the depreciation, but also to ensure you don’t lose them as a result of loss or theft.
Asset Tracking for Accounting Purpose
Typically, when you purchase fixed asset that is supposed to last for several years you cannot take tax deductions on it right away. Because you will be reaping the benefit of these assets over duration of time you need to take tax deductions over number of years. The tax authority in each country has established guidelines in terms of number of years over which you have to depreciate different types of assets.
Let’s say you purchase a computer for $1,000. You will not be able to write off this entire amount and take tax deduction in the first year. Instead you have to show this as an asset that will depreciate over 5 years. So in the first year you can take $200 deduction and do the same for the next 4 years. If you do lose the computer before 5 years so that you cannot use it anymore the tax authority allows you to write off the remaining amount right away. However, the onus is upon you to prove that the computer is no longer providing you business benefit.
This is where asset tracking comes becomes important. If you have been keeping track of your assets properly you will be able to prove the usefulness (or lack thereof) of the asset. By keeping track of the assets over years you will be able to take proper tax deductions and will not run into legal troubles when you area asked for proof.
Loss and Theft Prevention
It is a fact that any business will lose assets over time – either they get misplaced or they get stolen by employees or others. It is amazing that most business owners are not even aware of how much gets lost or stolen. In some instances the assets will end up somewhere in the closet without being used for a long time and will eventually go missing.
No matter how you lose assets it is the money walking out the door affecting your bottom line. The smaller the business the more impact it will have on your business as a result of lost or stolen assets. Again, keeping regular track of your assets will help you know what you own and how much goes missing on a periodic basis.
There are simple solutions available that can help you keep track of the assets and inventory. The combination of bar code labels and a simple scanner can help you do that without spending significant time, money and effort. Putting bar code labels on every asset and scanning them when the assets are purchased and being “checked out” you will be able to track them and will come to know when they go missing. Simple software such as the one produced by Assetware UK can enable full tracking of all your assets and help you keep costs to a minimum and increase profits and tax accuracy.
