Top 5 Ways To Find Money Through Fixed Assets

Wow… today the stock market crashed so big it has probably got us all thinking… where do we go from here? Which also gets me thinking — how can businesses find some cash flow so they have some “rainy day funds” (or for operating expenses) in their back pockets?  Then it dawned on me… if they manage their fixed assets properly and received detailed cost segregation studies or had a proper 3115 study done, then shoot, EVERYONE could have extra cash flow.

If you think about it, there really are many ways to capture extra cash flow through fixed assets.  From very small efforts to large.

Top 5 Ways Fixed Assets Can Capture or Re-capture Cash Flow

  1. Cost Segregation Studies – extra Tax Deductions with properly classified fixed assets.  Money is in the DETAILS, not in bulked entries everyone!  Make sure you capture your 100% bonus depreciation for 2011 – it will go away soon.
  2.  Rev Proc 2007-16 Study – 3115 assets; allows taxpayers to change their method of accounting and claim the allowable depreciation (or amortization) amount they never claimed (i.e. bonus depreciation, etc.).
  3. Physical Fixed Asset Inventories – cost savings all across the board with Property Taxes, Insurance Premiums, Financial savings impact and more.  Have you ever done one of these before?
  4. Asset Appraisals – is it really worth TODAY what it once was?  Probably not.
  5. Automated Depreciation System – if you are still stuck in spreadsheet land for calculations, believe me when I say, YES you ARE missing additional expense and bonus that you are entitled to.  I see it every time I open someones spreadsheet!  Doesn’t matter the size of the organization or spreadsheet, there is ALWAYS calculation error, sometimes in the millions.

Which industries would benefit from these services / studies?  Just about all industries, well, maybe government and non-profit wouldn’t benefit from all five, but certainly from a couple.  Industries that would uncover a ton (always in the thousands – sometimes millions) from one or all five: hospitality, data centers, banks, manufacturing, retail, healthcare to name a few.

Now I know why I love waking up every day to go to work for the past 14 years (and growing)… because everything I (and my associates) do each and everyday help people and their businesses grow.  Who doesn’t like that?  Probably the same people who don’t like furry fuzzy kittens.

 

 

Rolling Out Large Fixed Asset Management Projects

It’s that time of the year again when companies (large and small) are just starting to think about their year-end processes (or just finished with them and their Auditors) when fixed assets come into play.  Property tax season is now coming upon us all and shortly thereafter… tax filing.  

When getting ready to prepare for this type of fixed asset management project, people tend to have a mini (or large) freak out.  I want to remind you all that you don’t have to bite off more than you (and your budget) can chew.  Have you ever thought about breaking your project out into prioritized phases?  Below is an example of the kind of a approach you can take to complete your full fixed asset management project.

Real World Example

Background: Company XYZ is a large fortune 500, multi-location, publicly traded company.  They have well over 50,000 assets within the U.S. 
Current Issues they are facing:

  1. No automated system to calculate their TAX, State and AMT depreciation calculations = hand calculated (spreadsheet formulas) and delayed filing and delayed provisions. (P.S. they are using an ERP solution)
  2. Inaccurate fixed asset listings – due to never performing a physical asset inventory or reconciliation = leads to inaccurate:
    1. Property Taxes and delayed filing
    2. Improper insurance coverage
    3. Financial reporting
    4. SOX 404 Compliance risk
  3. Multiple locations that need an inventory with bar code tagging = thoughts of many, many dollars run through their minds.
  4. Lack of policy/procedures = lack of maintaining accurate fixed asset records.

Recommendations to perform an ACCURATE and MANAGEABLE fixed asset project.

Priorities for this Client were to get their federal Tax, State and AMT calculations automated.  We based their project off of this high priority. 

  1. PHASE ONE: Implement an automated fixed asset accounting solution (Sage FAS 500 Asset Accounting was used).  Finalize this project implementation, work through the data and get it live for use.  Ran their 4562’s, 4797’s, etc.  Receive an immediate return on the software and implementation costs.
  2. PHASE TWO: Start to roll out the physical asset inventory project  through a pilot program.  Starting small — prioritized the PILOT by number of anticipated fixed assets and activity.  Finalize and reconcile this data to observe the findings and obtain an immediate cost recovery on project.
  3. PHASE THREE: Perform the physical inventory on the other locations that were necessary – again, based on priority.  Reconcile results – find and capture the return on investment by property tax savings and insurance premiums. 
  4. PHASE FOUR: Implementation of an automated fixed asset inventory solution that supports the use of bar code readers / technology (Sage FAS 500 Asset Inventory was the solution of choice).  Now the Client can maintain the clean database and keep it maintained with annual physical inventory audits, etc.
  5. PHASE FIVE: Consulting on on-going use / maintenance of the fixed asset solutions and complete management.  Set in place policies/procedures and train staff on the workflow and systems where necessary.

Working with a Phase approach to fixed asset management works to keep it manageable.  Not only is it manageable for your staff and your business… it’s also manageable for your budget, as each phase pays for itself at the end.  Every step of success opens doors for more.

Baseline or Dynamic Asset Inventory?

When discussing someones upcoming physical asset inventory with them…  “Angie, we are just going to take our outside fixed asset listing of all our capitalized assets from [insert: CPA firm, outside agency, head department, etc.] and use that to FIND and TAG our assets.  We don’t need to do a Baseline because we already have a list.”

Really?  I don’t like to be frank and when I am, I am very diplomatic.  But honestly… the whole reason people come to me (or my other associates at Paragon Systems) is because they DON’T have a CLEAN list – or one they just adopted one.  The whole point is to gather data, reconcile back to accounting records and GET a clean fixed asset list. Why?  To continue to keep it clean so they know what they have and what they don’t.  There are many benefits to a clean and successful inventory.  Ok, getting off my soap box. . .

May I please share with you the reasons why you SHOULD NOT conduct a Dynamic inventory of your fixed assets if you don’t have a GOOD list — or one that hasn’t been yours?

  • List Integrity – the whole reason that someone takes over (brings in-house) their assets is because their ‘outsourced/other’ list isn’t correct.  Right?  Right.
  • Timing – it’s going to take a LOT of time and man-power to look for every needle in your very large haystack. 
    • Individual timing: instead of taking an average of 3 – 5 minutes tagging and collecting data for one asset, it will take about 30 – 60 minutes.
    • Overall project timing: months and months and months of tagging and data collection.  Will you ever really finish?
  • Reconciliation – it is always easier and more efficient to conduct your reconciliation off-line back at your desk than on the fly in the field.  Once you’ve collected your data during a baseline inventory, you can always perform a comparison against your data in Excel.  This assists you with filling two (2) buckets: matched assets and unmatched assets.  You will be able to determine which assets you will need to investigate on (the not matched) much quicker AFTER collecting your data (via Baseline). 

Dynamic – GREAT option for those of you with a fixed asset list.  Upload your data into an automated hand-held bar code scanner (preferred method) and start your inventory.  Update any / all descriptive fields of information while you are in the field.  End result – validating your data in the field.

Baseline – You have no accurate list (or a list at all) or a highly imperfect one and you start tagging your assets to capture all the data about the asset.  Although it might seem obvious, make sure that you pre-define what information you will be collecting on your assets before you go willy nilly.  End result – building your list.

Bringing my point home.  Why spend days, months or even years hunting for a needle that may not even exist at the end of the day?  If you have a list you DON’T trust (or one at all), go Baseline!  Who wants to start over?

More information on the differences between a Baseline and a Dynamic phyiscal inventory.

Love Your Assets – Tag Em’

Do you truly love your fixed assets?  How about giving them a Valentine today and get serious about conducting a physical inventory!  Sounds romantic doesn’t it.

Ask yourself this question, has your business or organization ever conducted a fixed asset inventory audit?  Is your answer no?  This is all too common.  What everyone doesn’t understand is that knowing what you have and what you don’t have is a really big deal and greatly impacts your budget amongst other benefits.

Not only does conducting an inventory audit ensure your accuracy of asset information on your books, it also sets a best practice of managing your assets.   Before you even think about starting your inventory, you need to make sure you have everything planned out and ready to be executed BEFORE you (or anyone off the accounting street) hit the floors with a clip board and some inventory tags.  This will turn out to be a disaster!  A few things to think about prior to auditing:

  1. Company-wide Participation — Make sure everyone and all departments are on board with this project.  If not, this project will fail before it even gets started.
  2. Asset Tagging — What are you going to tag?  Where will you place the tag? How many tags will you need, will they be customized?  What about the starting sequence?  The best one… what TYPE of tag are we going to implement?
  3. Data Collection — What information will be obtained when we are out there?  Where in the heck will all this information go both in the field and out of the field?
  4. Reconciliation — Now that you’ve collected your asset data, make sure you match to your original records and CLEAN THEM UP.
  5. On-going Management — Now what’s your plan for the future?  Don’t take all that time to clean just so you can get dirty again.

Now that you have shown some love to your fixed assets — nothing says you really care like an automated full circle fixed asset management solution!  No, spreadsheets don’t count here – nor do clipboards.  What should you choose?  Hahahaaaa… well, Sage FAS Track Pack with industry leading bar code readers of course!  Email me a valentines asking how you can get started showing the love.

From my assets to yours, Happy Valentine’s Day!

Anyone Missing Fixed Assets?

Recently myself and another senior fixed asset consultant went on site for a discovery meeting at a prospects who are having issues with controlling their fixed assets.  Some were tagged, some were not.  Those that are/were tagged had different types/formats of tag’s, etc.  They have about six (6) locations throughout the United States and have their fixed asset data in about 8 different Sage FAS companies — each one set up a little different.

Their computer equipment assets that were getting ready to be disposed of.  However, some had tags, some didn’t… not all were recorded to accounting — and if/when they were… they didn’t always have a unique asset id number to use. 

After about a two (2) hour discussion about their upcoming project and what the best approach would be, my associate and I walked out the front door… and a TON of their fixed assets were too!  Guess what, they didn’t know.

Best practices of conducting your own physical asset inventory – free webinar.

Sage FAS Asset Accounting: Release of Version 2011.1

The moment has arrived for all you Sage FAS Asset Accounting users out there (over 300,000 active users).  The release of version 2011.1!  Yes, it incorporates tax law changes made during the year including the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and the Small Business Jobs Act of 2010. 

This release is only available for CURRENT Sage Support members and new licenses.  If you need to renew your support to take advantage of this slick automation and updated depreciation methods and provisions, call me now at (847) 2402981 ext: 164 or shoot me an email with the SUBJECT: RENEW.

The FAS 2011.1 Tax Update contains exciting new features and enhancements to your:

  1. Tax Law Updates: Sage has updated the Sage FAS program to comply with the latest tax law changes:  
  • Updated Tax Forms and Worksheets. The 2011.1 Tax Update includes the updated IRS Form 4562 – Depreciation and Amortization for 2010. 
  • Updated Tax Limits. The 2011.1 Tax Update complies with the scheduled updates to the Section 179 limits and luxury auto limits, including changes to allow up to $250,000 of the Section 179 deduction to be claimed for qualified real property.
  • 168 Allowance of 100% for Certain Property. Assets placed in service after September 8, 2010 and before January 1, 2012 can take a 100% bonus deduction.
  • Extension of Tax Provisions. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 has extended several tax provisions, such as allowing a 15 year estimated life on qualified leasehold improvements, qualified restaurant property, and qualified retail improvement property.

2. Updated Audit Advisor. Sage FAS made the following updates to the Audit Advisor:  

  • Check for the increased Section 179 limits as stated above. 
  • Extend the check for Qualified Restaurant, Leasehold, and Retail Improvement Property. 
  • Added a new check for assets that claimed a 50% 168 Allowance when they are eligible to take the increased 100% depreciation allowance. 
  • Added a new check for real property that may be qualified for the Section 179 expense deduction.

3.  New Sage Timberline Enterprise Link. We have added a new general ledger link that enables you to post depreciation expense and accumulated depreciation from Sage FAS to Sage Timberline Enterprise.

NOTE: Please note that no database conversion is required to upgrade from version 2010.1 of Sage FAS to version 2011.1. However, if you are currently using an older version of Sage FAS, you must first upgrade to version 2010.1 before installing Sage FAS version 2011.1. 

If you DON’T have all the CDs or other material available for versions lower than 2010.1, you need a data schema upgrade.  Contact me today for competitive rates.

Bonus Depreciation 2010 and 2011

There seems to be some confusion when it comes to the bonus depreciation effective dates for fixed assets.  When do I use the 50% bonus?  When is the new 100% expensing rule apply? Is it only for 2011 or retroactive?  Allow me to shed some light on the subject for you.

Placed-in-service Date

Bonus Depreciation Level
January 1, 2008 – September 8, 2010

50%

September 9, 2010 – December 31, 2011

100%

January 1, 2012 – December 31, 2012

50%

 Bonus Depreciation and AMT Depreciation Relief

50% bonus depreciation is for qualifying personal property fixed assets placed in service after January 1, 2010 and before September 8th, 2010.

100% bonus depreciation is for qualifying property that is:

  1. Placed in service and acquired after September 8, 2010 and before January 1, 2012
  2. Purchased after September 8, 2010 and before January 1, 2012
  3. Qualified AIRCRAFT or Long-Production-Period placed in service before January 1, 2013

In addition to extending the eligibility period for bonus depreciation on fixed assets, the extension of the placed-in-service deadline also extends the eligibility period for obtaining exemption from the AMT depreciation adjustment.

For 2012, bonus depreciation reverts back to 50 percent and it is the last year bonus depreciation is available.

15-Year MACRS Depreciation

The 15-year recovery period has been extended and retroactive  for both 2010 and 2011.  Assets that qualify:

  • Qualified leasehold improvements,
  • Qualified retail improvements, and
  • Qualified restaurant improvement property has been extended retroactively for 2010 through 2011.

UPDATED 04/01/2011:  Guidance Issued on 100% Bonus Depreciation Rules Tax Advisor Article

Need a better fixed asset solution than your spreadsheet, home-grown database or ERP systememail me today.

IRS Reference for 50% bonus and new Section 179 deductions: http://www.irs.gov/formspubs/article/0,,id=177054,00.html

The information contained in this article does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation.

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