You've probably heard the expression that a business is only as good as the people who work there.

Of course, people are key — but there's much more behind a successful business. Asset managers would probably tell you the business is only as good as its assets. That's because assets that aren't being managed properly will cost a business money rather than increase its profits.

That's where assets management comes in.

The process of monitoring and managing assets keeps them working their best. This goes for all types of assets, not just those that have a clear function in the business, such as a piece of equipment.

Keep reading to learn what an asset is, the different types of assets, and what you can do to manage assets effectively in your growing business. 

Table of Contents

• What is asset management?
• What is an asset?
• Types of assets
• Properties of assets
• Why asset management is important for mid-sized businesses
• The asset management life cycle
• Creating an asset management policy
• Asset management tools for mid-sized businesses
• FAQs

What is asset management?

Asset management involves monitoring assets to ensure they provide maximum value to the business. For example, a growing retail chain might use asset management to monitor inventory across multiple locations to ensure optimal stock levels and avoid unnecessary carrying costs. Effective asset management for mid-sized businesses helps maintain financial stability and fuels long-term growth by reducing unnecessary costs and increasing productivity.

For growing businesses, this means aligning assets, such as physical equipment and intellectual property, with operational goals and financial strategies. This helps ensure that everything the business owns contributes positively to the bottom line.

To further understand the importance of asset management, let's look at the definition of an asset. 

What is an asset?

An asset is anything a business owns or controls that provides current or future economic benefit. A business' financial health is dependent on clearly identifying and properly managing these assets.

There are many different types of assets, and as a result, there are unique ways of managing each asset type. They are also a key component in the accounting equation (Assets = Liabilities + Equity).

• If you want to quickly find a list of a business's assets, you would look on the balance sheet, where you would find assets listed as current or long-term. 

Types of assets

Assets are categorized based on their substance and function in the business. Various forms of assets require tailored management practices to deliver optimal value.

Below are some common types of assets relevant to thriving businesses.

Current assets

Current assets are items that can be converted to cash in a reasonable amount of time. For financial statement purposes this is one year or less.

Current assets include:

• Cash: cash in bank accounts, petty cash.
• Accounts receivable: payments owed by customers for services and/or products.
• Inventory: retail stock such as clothing, or manufacturing components like raw materials.
• Short-term investments: treasury bills, guaranteed investment certificates, any investment maturing within one year.
• Prepaid expenses: insurance premiums or software licenses paid upfront.

One goal for current asset management is to cycle current assets through the business as quickly as possible.

Long-term assets

Long-term assets such as fixed or capital assets include items that have an enduring value to the business. They are crucial to a company's ongoing operations and strategic value.

Long-term assets include:

• Property and buildings
• Machinery and production equipment
• Vehicles (such as a company fleet)
• Intellectual property (including trademarks or patents)
• Long-term financial investments

A goal for long-term asset management is to maximize the value of an asset over its lifetime.

With vehicles and equipment, for example, proper maintenance helps ensure these assets last as long as possible and continue to provide value to the business.

Tangible assets

Assets that have a physical substance (you can see them and touch them) are called tangible assets. Vehicles, equipment, and buildings are all examples of tangible assets. Monitoring their condition is key to managing tangible assets. This is so the business can plan for replacing the asset, if necessary.

When a tangible asset is purchased, its useful life is estimated for the purpose of recording depreciation each year. The asset manager can monitor the asset for wear and tear, compare its value to its remaining usefulness, and budget for its replacement.

Management of tangible assets involves regular maintenance, performance evaluations, and tracking depreciation to anticipate when replacements are needed.

Intangible assets

An intangible asset is one that you can't see or feel.

Examples of intangible assets include trademarks, copyrights, patents, and goodwill. Goodwill includes things like a business's brand, its client list, and its reputation.

Intangible assets can be a little trickier to manage because they lack physical form. But this doesn't mean they lack value. A key aspect of managing intangible assets is ensuring they are properly valued in financial reports.

Operating assets

Assets that are used to generate revenue and maintain a business are called operating assets. Revenue-generating assets include inventory and some types of capital assets, depending on the business.

In a manufacturing company, equipment used to produce the products sold is a revenue-generating asset. Cash, accounts receivable, and prepaid expenses are examples of assets that help maintain a business.

Non-operating assets

Non-operating assets aren't used in the day-to-day operations of a business.

For example, if a business owns financial investments such as stocks, these would be considered non-operating assets. They still have value to the business and can earn income, but they aren't part of the business's daily operations.

As you can see from this list, some assets fit into more than one category at the same time. For example, cash is an operating asset and a current asset.

Properties of assets

How do you know if something should be categorized as an asset?

There are three conditions that must be met in order for something to be considered an asset: ownership, economic value, and resource.

Ownership: Ownership of an asset is determined by who controls the asset. This is why it's so important for business owners to be clear on what is a business asset and what is a personal asset.

In the case of capital assets, the sale agreement will have the business's name on it, proving ownership. For a current asset like accounts receivable, the sales invoice will have the business's name on it, showing that the business has the right to collect the money owed to it.

Economic value: If something doesn't have economic value — it can't be converted to cash — then it's not an asset. An asset must have economic value and also be considered a resource.

Resource: A resource is something that has future economic value. In accounting terms, this means it will generate income for the business going forward. 

Why asset management is important for growing businesses

With proper asset management, a business can scale up and continue to operate efficiently. Without asset management, you may be running obsolete equipment that's costing you money. A good asset manager will watch for things like:

• A high cash balance
• Slow accounts receivable turnover
• Aging capital assets

Why do these things matter

When a business has a high cash balance in its bank account, it's time to decide if:

• The money could be put to better use.
• A high-interest savings account may be more beneficial.
• A long-term investment might be worth considering.
• The money might be better used for purchasing new assets or expanding operations.

The best option will depend on the business's goals.

Analyzing a slow accounts receivable turnover can:

• Indicate if it's taking a long time for the business to collect payments from customers.
• Provide valuable sales insights.
• Lead to improvements in collections.

Keeping an eye on aging capital assets can:

• Alert managers when repairs and inefficient production times are costing a business money.
• Help determine when it's time to invest in new equipment.
• Make processes more efficient to save the business money in the long run.

The asset management life cycle

If you've never thought about asset management in your expanding business, following an asset through its life cycle can be useful. This applies to capital assets more than any other class of assets because they come with an estimated useful life. Current assets don't have this component.

Follow these steps to help manage capital assets in your business:

1. Determine which capital assets the business owns.
2. Evaluate these capital assets for efficiency.
3. Decide if any capital assets need to be replaced and when.
4. Record depreciation and assess net worth on a periodic basis (monthly or yearly is common).
5. Dispose of any assets that were replaced in Step 3 by selling or recycling them.
6. Record capital asset purchases and disposals as they occur.

Considering the stages of the capital asset life cycle can help you plan for the assets' ongoing maintenance and eventual replacement.

Creating an asset management policy

As a business grows, it becomes more important to create an asset management policy.

This document can help your organization effectively manage assets by detailing who (or which department) is responsible for which types of assets, how often assets are to be evaluated, and what steps to take for improvements.

• Responsibilities and Definition: an asset management policy should contain a definition of the assets held by the business, including the asset types. It should also include procedures for tracking and replacing assets and strategies for maintaining assets, including any necessary repairs.
• Lifecycle Management Procedures: Establishes clear procedures and schedules for how assets should be tracked, evaluated (including frequency), maintained (including repairs), and eventually replaced or disposed of.
• Authorization and Improvement: Outlines the specific steps and authorization levels required for purchasing new assets, replacing existing ones, and implementing improvements to asset management processes.

Such a policy helps maintain financial discipline and operational efficiency by assigning clear responsibilities, establishing regular schedules, and clarifying processes for asset acquisition and disposal.

Asset management tools for scaling businesses

There's a lot to consider when thinking about asset management. If you're not sure where to start with asset management, financial management solutions like QuickBooks Online Advanced can help. With solutions to track assets, inventory, and more, QuickBooks will help things run smoothly while you scale your business.

Get the tools to manage fixed assets with smart automation that tracks your assets, calculates book depreciations, and generates reports. Book a free consultation to get started with QuickBooks Online Advanced today. 

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