5 Ways to Improve Cash Flow by Better Utilization of Fixed Assets
Cash is King in any business. Businesses thrive when they are able to generate not only paper profits, but timely cash receipts to manage their expenses and pay-outs. Cash flow is the primary life blood of the business, and businesses that find themselves with high receivables (current assets) but little cash flow can land in trouble.
So what are the ways that businesses can improve their cash flows and operate more efficiently? One of the critical ways to do so is by the optimum usage of their fixed asset inventory.
Here are five solutions which help improve the cash flow position of companies through better fixed asset management.
- Cost Segregation for Depreciation of Assets
Companies who have constructed, purchased, expanded or remodelled any kind of real estate can choose to depreciate their assets at a faster rate and therefore increase the depreciation amount, thus reducing the outward flow towards taxes and leave more cash flow in the account.
- Changing Depreciation Methods
By changing their method of depreciation, companies can choose to increase the allocation towards depreciation and keep the money aside. This also reduces the tax outgo and improves overall cash flow for the business. However, there are restrictions on the number of times a company can switch its method of depreciation in a fixed period of time.
- Physical Inventory of Fixed Assets
By conducting a verification audit of fixed assets, companies can reduce ghost assets, thereby reducing the taxes, insurance premium and maintenance provision for the assets taken off the books. Regular physical assets help company recover assets lost due to pilferage, etc. and minimize future losses from these expenses.
- Re-evaluation or Appraisal of Assets
procedure where an asset value is determined. An appraisal of the asset can be undertaken at any time and the asset value corrected based on the auditors’ inputs on the remaining useful life of the asset, etc. Based on a number of factors, such as the cost, the income generated and its market value it is compared to other assets. A change in the value necessitates the change in depreciation of the asset and this can lead to significant savings or losses to provision for in the P&L and balance sheet.
- Implementing Automated Depreciation System
If an organization is still stuck with the spread sheet then they are missing out on opportunities to capitalise on additional expense and bonus that they are entitled to have.
Judicious use of the above accounting and assessment methods for fixed assets can help the company generate significant cash flow over time.
The entire activities given above are possible through the use of a suitable Fixed Asset Management Solution such as Tracet. To know more about Tracet’s capabilities, write to us at firstname.lastname@example.org