Are Ghost Assets Haunting Your Bottom Line?

Many businesses are already aware of how important a fixed asset tracking solution is for the profitability and stability of their operations. When maintained properly, a fixed asset ledger can reduce many headaches across a company, such as improving budgeting and saving the company tens of thousands of dollars a year. Unfortunately, many of these same businesses don’t give enough attention to tracking and maintaining accurate fixed asset records, and this leads to a problem known as ghost assets.

Properly implemented asset tracking techniques lower your administrative costs, streamline your business services, improve your customer service, and allow you to scale your business upwards with ease. If you don’t use a type of tracking software to audit your fixed assets, your company is likely haunted by ghost assets. Outsourced accounting services for small business can ensure ghost assets aren’t affecting your bottom line.

Chances may even be high that you’re not quite sure what ghost assets are, or how they affect your revenue, accounting books, and taxes. So, what are ghost assets?

What is a Ghost Asset?

A ghost asset is a fixed asset that appears on your businesses’ general ledger.  The item was purchased, at one point, to help in the production of income (such as a piece of warehouse equipment, laptops, vehicles, real estate, and so on) and has since disappeared from your physical workplace or has otherwise been rendered unusable. This means that while you’ve been accounting for an asset on your books and in your tax returns, it hasn’t contributed to your bottom line since becoming a ghost.

As you can imagine, allocating valuable resources, your company’s time, energy and money, to assets that essentially no longer exist can be a huge drain and can turn a profitable business into a failing company. Poor accounting is one of the top 10 reasons small businesses fail (according to the New York Times). Ghost assets are a painful symptom of poor accounting.

How do Ghost Assets Impact Your Bottom Line?

When your business has inaccurate fixed records due to ghost assets, you’re impacted in a variety of ways, not just in terms of financial or productivity losses. Here are some of the problems that arise when you don’t track down and eliminate ghost assets from your ledger:

1. Increased Tax Liability

Every penny counts when running a small business. When you have multiple ghost assets in your books, you misrepresent the amount of inventory you own that is actually taxable. This means you could be significantly overpaying on your taxes. For example, if you can’t account for 25% of your assets, you are overpaying at least that much of a percent on items you don’t use or even own anymore. You may even be able to reduce your tax bill by 20-30% by retiring unused or missing assets.

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2. Increased Insurance Premiums and Risks

Most assets are expensive which is why companies get insurance for them. If your asset has become a ghost asset, you are paying insurance on something that doesn’t exist which results in paying unnecessarily high premiums. On the other hand, if upgrades to a company’s production line, warehouse or other means of creating inventory have not been properly accounted for and insured, the company may be under-insuring its assets and increasing its exposure to loss. Insurance companies will charge you for everything you claim is fixed and needing business insurance coverage. Again, if you are missing 30% of your assets, you are unnecessarily overpaying on your insurance premiums.

3. Budgeting Issues for Future Capital Expenditures

Business is booming and you decide to ramp up your means of production in order to meet increasing demand. This is great news for your business! You may, however, need to invest some capital into buying new fixed assets. If crucial cash is tied up in assets that don’t exist, you won’t have the liquid means to invest in new machinery, however, and other means of production. Fixed assets, by their nature, are not meant to be converted quickly into cash, and thus you’ll be stuck with limited means to upgrade, instead, you’ll have to dip into your hard-earned revenue to do so.

4.  Avoidable Maintenance Fees

No business owner wants to be charged to maintain an asset they no longer own. Ghost assets will also cost you money and it is essential you find and eliminate them to avoid paying maintenance fees. Gartner discovered that one particular business saved $100,000 in maintenance fees when it eliminated a product it wasn’t using.

5. Decreased Productivity

At first glance, ghost assets might not appear to have anything to do with your business’s productivity. However, nothing could be farther from the truth; ghost assets reduce productivity and efficiency when employees are unable to perform their jobs due to assets which are marked as available but are really missing. A ghost asset which is listed as “available” in your system is not any use to an employee who needs it right away.

5. Outdated Asset Management System

In 2019, there is simply no excuse for continuing to track your assets and inventory by hand. Lack of proper inventory management systems increases your chances of having ghost assets. Automated systems incorporate barcode and/or RFID technology to keep track of your assets. Included in automated systems are the check-in/check-out status, current location, and it will even track important information like depreciation levels and maintenance schedules of all equipment. The money spent on asset tracking software results in a massive return on investment over time. Outsourced accounting services for small business can help ensure your company implements the proper asset management software.

6. Compliance Ramifications

If you aren’t keeping track of what assets are actually available to you and which are missing, you could be subject to a variety of non-compliance risks depending on your industry. Inaccurate financial reporting as a result of ghost assets means the possibility of being out of compliance with the Sarbanes-Oxley Act, which was passed in the early 2000s to counteract a rash of accounting scandals by large companies. The negative impacts of ghost assets on compliance are especially serious if your business is part of a federal or state government agency which is held to certain budgeting and regulatory standards.

Don’t Let Ghost Assets Scare You- Knowledge is Key!

Ghost assets are very real, on average, 12 to 25% of the assets included in a fixed asset ledger don’t even exist. Knowledge is half the battle, and a smart investment in the proper technology can help keep these non-existent items at bay, and your business functioning the way it was meant to.

Limitless Investment & Capital’s Outsourced Accounting Services

With the help of Limitless Investment & Capital’s outsourced accounting services, you can eliminate ghost assets and save your bottom line. Our experts can help your business implement an asset management system to ensure you aren’t paying for assets that don’t exist. Good accounting habits are the key to running a successful business. Let’s get started TODAY!