A recent report published by the State of Small Business illuminates the fact that approximately half of SME’s are not tracking their inventory or are doing so by manual means. Fixed assets and inventory are sometimes seen as assets by a companies financial department, however not every asset belongs with inventory. With these practices being brought to light, it should not come as a surprise to anyone that approximately 50% of new SME’s go to the wall before the end of their fifth year. It must be understood that assets and inventory are notably different aspects of a business. In the case of inventory, it can be described as what you sell to make your profit, where assets are there to assist the company with the acquisition, maintenance and distribution of inventory. This is an important concept to note when deciding whether your company needs an inventory management or fixed asset system, and this is especially true for brick & mortar enterprises.
What separates these two aspects is inventory can be counted as the raw materials, products being manufactured as well as complete items the company wants to sell in order to get their turnover. If the business is to be successful, the inventory must be either sold, processed via distribution channels, or used in production. Assets can be considered as anything that is used as part of the companies efforts to produce their products, including machinery or other equipment, and crucially to the difference, they are not counted as part of the revenue stream or as products. It is unusual to sell such items within a year, barring upgrades, moving the factory, or in the most unfortunate scenario, closing.
Inventory must be kept track of as it is a considered current asset by the finance department, meaning it will be sold in the sort term, all being well. Time may render some inventory obsolete, or overstocking will make it difficult to sell everything. The inventory management system must be able to foresee these occurrences in order that the company will have a chance to deal with them.
Keeping track of assets is also very important. Specifically, fixed assets, or hard assets, which are filed under long-term assets by the finance department. This refers to the idea that the company sees them as long-term investments, which will pay off over time.
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