Preparing for a New Era of Growth
The economy appears on the brink of an upturn. Global opportunities are increasing and there are clear signs that overseas investors are looking hard at UK businesses once more. But while organisations across the UK have undoubtedly achieved new levels of efficiency to ride out the last five years, the vast majority have radically underinvested in new equipment: sweating the assets has become a fine art.
While reinvestment is becoming a priority, business agility remains essential given the fragile nature of the recovery. Organisations need to both prove the business case and enable effective due diligence for potential investors and buyers whilst continuing to balance acquisition with utilisation. Yet with typically poor quality asset records, most organisations struggle to provide even the most basic insight into the value and location of the asset base.
As Karen Conneely, Group Commercial Manager at Real Asset Management explains, getting the asset estate in shape is fast becoming a priority – but investing in new assets without the right processes will be an expensive mistake.
Time to Reinvest
With growth now a reality, business optimism is increasing and organisations are, tentatively at least, considering a future that just may include capital expenditure. Having avoided significant investment over the past five years, the pressure is now on to reinvigorate asset replacement programmes. Indeed, any new contract or joint venture may well prompt a need for a radical reinvestment.
However, no organisation can have complete confidence in the speed and depth of the recovery. With more than a degree of fragility in economies globally, there is a strong emphasis on building a more agile business. Can expansion be managed within the existing property portfolio? Should new assets be leased rather than purchased? How much value – and effective life - is left in the existing asset base?
Unfortunately, too many organisations are unable to answer these questions for one simple reason: there is no single, accurate and up to date information regarding the location or state of existing assets.
Understanding the asset estate should be a fundamental component of the growth process. With an in depth record of asset location and condition, organisations will be well placed to understand the need for new equipment and the utilisation of existing property portfolios. They will also be able to assess effectively the lease versus buy options.
So what is the first step? A comprehensive asset audit using barcode or RFID tags provides a complete picture of asset location and state. This asset register should also be linked to the finance processes, ensuring any new asset purchase invoice can be clearly reconciled with the actual asset.
By combining robust processes for introducing new assets to the business with routine and effective asset tracking, organisations can create a single, central asset register that encompasses every aspect of the asset history, from initial cost through depreciation timelines, maintenance activity and due replacement date.
This single asset register transforms business understanding. At the simplest level, it enables finance to take a capital view from the asset register each month – or at any other time demanded by potential investors. It supports due diligence activity, with proven and auditable asset records. It facilitates reallocation of assets between group companies – an increasingly important consideration in global operations. And it also provides the information to support asset utilisation processes – in line with ISO 55000 standards – that enable a business to maximise each asset’s lifetime value.
Creating a single source of asset information transforms the way business can address forthcoming challenges. For example, property asset information can include not only on-going maintenance but also utilisation levels, such as using room booking facilities to assess how often meeting rooms are booked. For any organisation hoping to extend the life of the existing office space through flexible working such as hot desking, any insight into occupancy levels is going to be key to determine when – or whether – to look for additional locations. Leased assets are also recorded, providing the business with an immediate view of projected outgoings for the next one, two, even five years.
Critically, this trusted, proven view of the current operating asset base can underpin the business case for additional investment, whether from the bank, venture capital or even potential investors in the company. Armed with this insight an organisation can now explore and exploit asset information to not only enable immediate investment in new assets but also underpin the on-going expansion plans in what must be a very flexible corporate strategy.
In many ways, UK businesses are actually in better shape than a decade ago. Debt is low; processes are robust and efficient and staff turnover has dropped radically. However, there is one major glitch – and that is the state of the asset base. Having understandably delayed, even ditched, traditional asset replacement programmes, the majority of organisations face a massive investment demand.
And while many companies have built up cash reserves, few will have the depth required to address the chronic underinvestment of recent years. To maximise new global sales and investment opportunities, asset replacement and the introduction of new equipment is now pressing. But in what remains a fragile upturn, agility is essential. By exploring asset insight, organisations can rapidly and confidently answer the key business questions – to lease or buy, replace or retain - and combine effective asset utilisation models with a proven business case for asset acquisition.