You either make money with your Fixed Assets or you don’t. If you make money with your fixed assets, then it’s about maintaining those assets. Should your money-making assets be nearing the end of their serviceable life, it’s about proactively planning for their replacement to avoid future sales interruptions.
If you have fixed assets in the business, it’s about deciding if there is an opportunity to make money off those assets or not? If not, you should convert them to cash or unload them. Don’t clutter your operations, property, or Balance Sheet with Fixed Assets that don’t contribute to realizing your profit plan.
Overview
A Fixed Asset is an asset that is not consumed or sold during the ordinary course of business. These assets include land, buildings, equipment, machinery, vehicles, leasehold improvements, and other such items.
Fixed Assets enable their owner to carry out operations. They are not immovable, but they are expected to last or to be in use for more than one year. The value of a Fixed Asset is calculated by deducting depreciation from the purchase price.
As any Fixed Asset with long-term value is used, the value of that asset decreases. The annual decrease in value is expensed as “depreciation,” so that the current estimated value of each Fixed Asset is reduced by the Accumulated Depreciation offset on the Balance Sheet.