blog / Finance
What is Asset Management? Does it Ensure Business Growth?
A company’s assets signify its financial stability. In fact, when a company looks to expand and seek investment, investors first assess the value of its assets. Hence, it is crucial for businesses to efficiently manage and maintain their assets. In this blog, we’ll discuss what is asset management, its different types, and processes, as well as its benefits. To start with, let’s answer the question: what is asset management?
What is Asset Management?
Simply put, it refers to the process of effectively managing or maintaining your current and fixed assets. Current assets are described as assets that are available for a short period, usually one year. It includes cash, inventory, and liquid assets. Fixed assets are long-term tangible assets that are not easily convertible into cash. For example, land, machinery, and Information Technology (IT) equipment.
In broad terms, it is all about managing assets throughout their life cycle—such as developing, operating, maintaining, and selling. Let us understand this with an example: A company purchases several laptops and provides those to its employees. Laptops are an IT asset for the company. Now, the company needs to keep track of how many laptops have been provided to its employees, which devices need maintenance, and whether the devices are being used for business processes. It uses IT tools to track, operate, and maintain laptops.
In financial terms, it refers to the practice of increasing an individual’s or organization’s wealth over a specific period. Companies undertake asset management by keeping track of all their financial investments. Selling company assets to fund a project, or protecting the value of an asset against depreciation is also a part of such management.
Benefits of Asset Management
It is crucial for businesses to keep a record of and manage their current and fixed assets. Here are some of the most significant benefits:
- Identifies and mitigates risks by increasing asset visibility and enables real-time asset monitoring.
- Helps companies track and eliminate assets that have been misplaced or lost.
- As companies get real-time information on their assets, they can make informed financial and operational decisions. This facilitates overall growth.
- It also allows companies to know when their assets require maintenance. Thus, effective management helps prevent asset failure and minimizes operational costs.
Types of Asset Management
Digital Asset Management
It refers to managing digital assets like intellectual property, documents, presentations, and websites. This type is primarily concerned with the security of digital assets. Such management also involves giving different stakeholders easy access to digital assets.
IT Asset Management
It refers to the management of hardware and software used by the company. These include Software as a Solution (SaaS) subscriptions and cloud network licenses.
Fixed Asset Management
Properties like lands or buildings owned by companies, machinery in factories, and production plant units that cannot be easily converted into cash are called fixed assets. It is a process that involves the tracking, monitoring, and managing of fixed assets, including scheduling their maintenance.
Financial Asset Management
Financial assets are intangible or non-physical assets. Think share capital, bank deposits, investments in stocks, mutual funds, future cash flows, and equity instruments. It involves managing tax and financial liabilities for businesses, as well as their investments and cash flow.
Enterprise Asset Management
As the name suggests, it refers to the management of the enterprise’s assets, or the assets of an entity across all the business units, facilities, and inventory records. It is a comprehensive process that encompasses the management of digital assets, IT assets, fixed assets, financial, and infrastructural assets of a company.
How Do Asset Management Companies (AMC) Work?
They manage funds for individuals and large-scale organizations. It collects capital from its clients (commonly called pooling of funds) and invests the entire fund amount in different financial options like mutual funds, equities, and index funds. AMCs generate revenue by seeking a fund management fee from their clients. They follow an elaborate process to generate returns for their clients by investing or allocating funds in various options, preparing an investment portfolio for the client, and then regularly assessing the performance of the entire fund.
How Much Does Asset Management Cost?
It can be a risky and costly affair for businesses, especially if there are no policies or strategies. The average annual cost for businesses in the U.S. is over $70,000. The cost of digital asset management goes up to $50,000 per year, and IT Asset Management software can cost $1,200 annually. Ineffective management can also lead to tax, compliance, and legal burdens for businesses, thus increasing overall costs.
Popular Asset Management Tools in the Industry
Tools or software solutions facilitate structured and real-time asset tracking and management for companies. These tools enable life cycle, asset inventory management, and preventive maintenance, especially for IT assets. The following are some of the most popular tools used across different industries:
- Asset Panda
- Manage Engine Asset Explorer
Best Practices for Effective Asset Management
Every company or organization frames its own strategy as per its business needs and financial goals. However, here are some of the most effective techniques popularly used by companies:
Frequently Analyzing the Performance of Assets
The most crucial step is regularly analyzing how your assets are performing. It helps you stay aware of their life cycle costs and also reduces maintenance costs.
Companies use tools and software to learn the real-time depreciation value of their assets. It helps make informed decisions on whether they should hold on to an asset or make new investments.
Eliminate Ghost Assets
It refers to eliminating assets that are mentioned in books of accounts but are not physically present. This helps reduce unnecessary expenses.
Ensure Regulatory Compliance
It is also necessary for businesses to frame effective asset compliance policies for effective management. Most companies use software to automate regulatory compliance.
A Career in the Financial Sector
The global market size is booming. It is expected that the market will grow at a 25.9% compound annual growth rate from 2020 to 2027. The most popular field in this sector is financial or investment management. According to the U.S. Bureau of Labor Statistics, financial manager jobs are expected to increase by 17% from 2021 to 2031, faster than the average growth of other occupations. Hence, this is the best time to build a career in this space.
Frequently Asked Questions
What are the 3 Pillars of Asset Management?
The three core pillars are people, processes, and technology. People are stakeholders who drive this in an organization. Process refers to a set of practices, regulations, and procedures to effectively manage assets. Technology plays a key role in making processes efficient.
What is Another Name for Asset Management?
It is commonly referred to as ‘wealth management’ as it helps manage investments which ultimately leads to wealth accumulation.
So, if you are seeking to advance your career in this sector, Emeritus’ online courses on finance and financial management could be of great help to you.
By Sneha Chugh
Write to us at firstname.lastname@example.org