Efficient asset management is vital for any business, and keeping track of your assets is key to maintaining profitability and compliance.
This is where a Fixed Asset Register (FAR) comes in. Whether you’re running a startup or a well-established company, a fixed asset register can provide a clear overview of the resources you own and help you make informed decisions.
In this blog, we’ll dive into what a fixed asset register is, its benefits, and why it’s essential for your business.
What is a Fixed Asset Register?
A Fixed Asset Register is a detailed record of all the long-term, tangible assets owned by your business. These assets are typically used in the normal operation of your business and include items like:
- Property (buildings, land)
- Equipment (computers, tools, furniture)
- Vehicles
The register includes key details about each asset, such as:
- Asset description (e.g., brand, model)
- Purchase date and cost
- Unique identification code (e.g., serial numbers)
- Location of the asset
- Useful life (expected duration of use)
- Depreciation rate and method
- Current book value (cost minus accumulated depreciation)
- Maintenance and repair records
Why Should You Have a Fixed Asset Register?
- Accurate Financial Reporting A fixed asset register ensures that all your assets are accounted for, which is crucial for accurate financial statements. Misstating or overlooking assets can lead to incorrect balance sheets and profit calculations.
- Improved Asset Management By keeping an updated record of all your assets, you can track their usage, maintenance schedules, and condition. This reduces downtime caused by unexpected breakdowns and extends the useful life of your assets.
Many small businesses just add equipment such as laptops as and when new staff start or the device needs upgrading, but when was the last time you accurately recorded that?
- Compliance and Audit Readiness Regulators and auditors often require clear documentation of fixed assets for tax reporting and compliance purposes. A well-maintained FAR helps you meet these requirements and avoid penalties.
Lots of small companies are not subject to audit, but then hit an issue when acquired by a larger business that does require annual audits, and the detail isn’t there. It is not uncommon to see a FAR required as part of any due diligence process.
- Depreciation Tracking Fixed assets lose value over time through depreciation. A FAR helps you calculate depreciation accurately, ensuring that your tax filings and profit calculations are correct.
- Budgeting and Planning Knowing the condition and value of your assets helps you plan for replacements or upgrades. This improves budgeting and ensures your business operates without disruptions.
- Prevention of Asset Misuse or Loss With a clear register, you can easily track the physical location of each asset. This reduces the chances of theft, misplacement, or unauthorised use.
What Happens Without a Fixed Asset Register?
Without a FAR, your business could face several challenges:
- Inaccurate Financial Statements: You might overstate or understate your assets, leading to flawed financial reporting.
- Higher Tax Liabilities: Missing or incorrect depreciation calculations can result in overpaying or underpaying taxes.
- Asset Mismanagement: You might lose track of your assets, leading to unnecessary purchases or disruptions in operations.
- Audit and Compliance Risks: Incomplete or disorganised records can lead to delays in audits.
- Poor Decision-Making: Without a clear view of your assets, you may struggle with planning and budgeting effectively.
How to Set Up a Fixed Asset Register
- Identify All Fixed Assets Start by creating an inventory of all the physical assets your business owns. Use labels or tags to assign unique identifiers to each asset.
- Record Detailed Information For each asset, document essential details like purchase price, location, serial numbers, and estimated useful life.
- Choose a Depreciation Method Decide how you will account for depreciation, whether it’s straight-line, reducing balance, or another method.
- Use Software Tools Consider using fixed asset management software to automate tracking, calculate depreciation, and generate reports. Xero has its own Fixed Asset Register feature, making asset management and depreciation tracking seamless, accurate, and efficient.
- Regularly Update the Register Add new assets as they are acquired, update values after depreciation, and remove items when disposed of.
A Fixed Asset Register is more than just a list of what your business owns; it’s a strategic tool that helps you optimise your resources, maintain compliance, and make smarter financial decisions.
Whether you’re a small business or a growing business, investing time in setting up and maintaining a FAR can pay dividends in operational efficiency and financial accuracy.
Talk to your regular MAP contact to get a FAR in place for your business.
