For many people, the term ghost assets comes with a sense of bewilderment. Indeed, past research has suggested that about half of small business owners or managers may actually be unaware of what is a ghost asset.
And if you are one of those who is unsure of what a ghost asset is, you won’t be in the best position to know the very real impact ghost assets can have on your organisation’s finances and day-to-day operations.
So, let’s take a look at how ghost assets may be holding back your business – and what steps you might be best advised to take to address them.
What is a ghost asset?
Even if you think you don’t know what a ghost asset is, there’s a strong likelihood that you have previously encountered the problem of ghost assets in your business.
Think back, for instance, to that laptop or other essential piece of equipment you were sure was in your office last year, but which is now nowhere to be seen. Or perhaps there’s another machine or device your organisation long counted on, and that you know the location of, but which has since broken down or otherwise been rendered unusable?
These are examples of ‘ghost assets’, which can be defined as assets that appear on an organisation’s fixed asset register, but are not physically available or usable – whether due to them being missing or non-operational.
What is the accounting cost of ghost assets?
You might initially imagine that the occasional ghost asset surely isn’t all that great an inconvenience – at least presuming you don’t have to reach for the given asset at a time of acute need, only to find it isn’t available.
The fact is, though, that even ghost assets will still count towards the tax and insurance liability of your organisation.
With fixed assets representing major investments for any business, and being prominently featured in their balance sheets, your business’s ghost assets will be unnecessarily inflating your insurance premiums and tax liability, while rendering your capital budgeting and financial reporting inaccurate.
That, in turn, will compromise your efforts to achieve regulatory compliance and accurately forecast capital expenditure.
What are the impacts of ghost assets?
The below are just some of the adverse consequences that can arise from ghost assets, when your business doesn’t have a strategy for combatting and removing them from your fixed asset register.
- Excessive tax liability. With your business’s inventory being taxable, having an elevated number of ghost assets within your organisation will mean that its inventory is misrepresented. It will also mean that you end up overpaying as far as your business’s taxes are concerned.
- Elevated insurance premiums. Ghost assets are assets that you can’t enjoy the practical benefit of as an organisation, but their inclusion in your business insurance coverage will mean that you are still effectively paying for them.
- A heightened risk of employee theft. An organisation that doesn’t maintain an accurate and up-to-date record of its assets could be leaving itself open to some of those assets being stolen by employees. Certain staff may realise that they can ‘get away with’ stealing assets without it even being realised that those assets are missing (never mind how they have gone missing) for weeks, months or even years to come.
- Damaged productivity. As we touched on above, if an employee of yours needs to reach for a particular asset that is on your business’s fixed asset register, but it turns out to be unavailable or unusable, this will compromise your organisation’s efforts to achieve the best possible productivity and efficiency. The staff member in question may be forced to seek out alternative equipment that would enable them to complete the given task, and the fact that the asset is marked as available in your asset register will be of no use to them, when they need to use that asset right now.
- Issues with compliance. Industry regulators will expect your organisation to maintain up-to-date information about what assets the organisation owns, which of those assets are available, and which assets might be missing. If, then, your business is not keeping on top of this crucial aspect of its asset management, various compliance issues could arise.
How do you get rid of ghost assets?
The following strategies will help your organisation to remove ghost assets from its fixed asset register, so that it benefits from accurate and up-to-date records:
- Use asset tracking software. Having the right asset tracking software platform in place will give you an effective overarching solution for managing assets across your organisation’s various departments – thereby helping to minimise the likelihood of ghost assets.
- Tag and track your assets. Today’s leading asset tracking software packages incorporate tagging technology – such as the Vision-tag (RFiD or Near Field Communication) technology that accompanies our own Vision Pro solution – allowing for live data to be maintained about each and every asset and its location.
- Create a fixed asset register, and audit it regularly. We’ve referenced fixed asset registers a fair amount in this article already, but not every organisation has such a register at all. Regardless, it is crucial to have arrangements in place whereby assets and their potential depreciation over time are accounted for, in order to minimise the likelihood of ghost assets. Not only should your firm have a real-time fixed asset register – not based on manual methods that are prone to error, such as pen-and-paper or spreadsheets – but it is also of imperative importance that you conduct audits on a regular basis.
Why should you be looking to remove ghost assets?
Getting rid of ghost assets from your organisation’s existing records will help it to achieve a broad range of benefits, including:
- The peace of mind of knowing the assets you have listed in your fixed asset register will be available when your personnel need to reach for them
- Your organisation’s insurance cover actually being well-matched to its assets – thereby helping to reduce your premiums
- Your business’s assets being accurately recorded for financial reporting
- Optimised budgeting to help improve your capital expenditure going forward
- The opportunities to save tax that it will aid you in identifying
- The optimisation of your business’s return-on-asset (ROA) ratios
Using software to manage your assets
If you are wanting to find a powerful solution for improving the accuracy of your organisation’s fixed asset records so that you can help cut out ghost assets, you can be assured that our own Vision Pro software is an industry-leading solution in this category.
Our feature-packed asset management software will provide you and your staff with a convenient single portal for the up-to-the-minute tracking, tagging and management of your business’s assets.
Give our team a call and we will swiftly get back in touch with you to discuss how our trusted software could be instrumental in your company’s efforts to banish ghost assets – thereby giving you a much more accurate sense of what assets your organisation actually has.