How to Effectively Manage Company Property and Assets
By Angel Rosario, Industrial Property Management Specialist, Defense Contract Management Agency (DCMA). If you have comments, please email it to Angel.Rosario@SmartBizPractices.com.
About half of all new establishments survive five years or more and about one-third survive 10 years or more.–SBA.Gov
Often times the difference between successful startups and failing companies is sustainability. If a company is unable to become self-sustaining (breaking even or turning a profit) then inevitably the company will “fail.”
This article will share strategies and tips you can incorporate immediately to your very own company, whether you’re in defense contracting or not. Using a free resource, the Federal Acquisitions Regulation (FAR), can help you establish an efficient property management system you can institute starting TODAY.
I will utilize the FAR as a reference because it is a time-proven regulation adopted by the United States’ top defense contractors to manage billions of dollars’ worth of tools and equipment. If the FAR is good enough to help contractors manage millions of line items, chances are it may be good enough to help you manage small businesses.
Government Property is defined by the Federal Acquisitions Regulation (FAR) part 52 as:
“Property in the possession of, or directly acquired by, the Government and subsequently furnished to the Contractor for performance of a contract…”
So what can YOU learn from an organization that acquires and manages millions of items that require tracking through its life cycle? Turns out, a lot!
As a property management professional and business owner, I have found that FAR clause 52.245-1 provides a great guide for managing your very own company property when supplemented with industry-leading practices. Adopting a property management system as outlined on this FAR clause allows you to:
- reduce fraud, waste, and abuse
- reduce losses and risks associated with your inventory and assets
- increase profitability
So now that we’ve touched some of the benefits of having a successful property management system, let’s briefly talk about the property system elements.
Please note that in this article the term ‘property’ is used synonymously with ‘assets’ and not specifically residential or commercial property such as buildings, land, residential or commercial.
This element addresses the adequacy of a contractor’s (or your
own business) policies, procedures, and controls. This includes desktop procedures and processes you can implement that allows for consistent and duplicable action.
As an entrepreneur or solo-preneur, you may be the one-person business handling all facets of your organization. Establishing procedures and controls are a great way to ensure you do not forget a step in the operations (imagine missing a quality check that leads to a negative review).
Another benefit of having procedures in place is that it allows you the opportunity to identify functions that can be automated or offloaded to another person.
The acquisition of property management refers to the documentation required to ensure material, equipment, and tooling purchased is consistent with your company’s needs.
Fewer instances irritate me more than carrying too much inventory or raw materials because this means my money is tied up until the products are sold and offloaded.
In addition, periodically analyzing the quantity and quality of items purchased help me identify what are my recurring orders (what do I always buy, and how much). Another benefit is that I can analyze the benefit of ordering materials in bulk at a lower cost while negotiating delivery schedules and payments.
The element of Receipt is beneficial because it helps companies account for deliveries of acquired property as they arrive at the work sites (even if it is a home-based business).
Adequately documenting the receipt, inspection, identification of your property can help identify discrepancies as they arrive. Instituting procedures for inspecting items as they arrive.
Fewer things are more important for a new business owner than maintaining the right records, accurately. Establishing a record that includes what property is on stock, how much raw materials, etc. helps prevent scrambling and loss of visibility.
The element of records is a very important outcome because it touches nearly every other element and its inherent success. Maintaining records on each article acquired, consumed, maintained and dispositioned/delivered separates a failing business from a successful one.
A great way to measure a company’s records is by conducted periodic physical inventories. By recording and analyzing inventory results, business owners are able to identify weaknesses and strengths in its property management system.
For example, identifying a specific location, material item or piece of equipment that raises a higher risk for being lost can help business owners put procedures and checks in place to reduce said risk of loss.
Just as it’s important to ensure your company’s affairs are in order, periodic evaluation of sub-contractors, vendors, suppliers, and organizations performing services (such as website management) can help identify areas where competition is thriving and better services may be better suited for your growing business.
Sometimes businesses fall victim to stagnation by doing things as they have always been done. Failing to schedule time to perform internal and external scanning of one’s environment can lead to waste and inefficiencies.
If your business is subcontracting portions of its work, it may be beneficial to evaluate the terms and conditions, to include updated flow down of terms and conditions. Numerous companies have felt scrutiny over suppliers’ unethical practices. As companies seek to lower expenses, some may choose to cut corners and/or award contracts to suppliers with lax or nonexistent oversight. Some recent examples include Lumber Liquidators, Apple, and Nike.
Many entrepreneurs clearly or loosely define an exit strategy for their businesses. The strategy might have goals to raise enough brand awareness that it can ‘’go public,’’ or it may choose to set up a self-sustaining business and sell it for a specific amount.
In order to create a duplicable business, I find it crucial to maintain records and reports that paint a broad picture of your business. Some of the reports include financial records, reports of inventory discrepancies, cases of loss, self-assessments, and other requirements. Maintaining these records not only help the new owner continue the success you have previously built but better helps you re-create your next project.
Even if you have no plans to sell your company, there is value in maintaining your own reports. The reports listed above provide a tangible and objective record you can evaluate identify areas of improvement and areas of concern. These reports can help your business spot trends, both negative and positive in nature.
The element of utilization is a very important element as it covers several subcategories. This element includes the using, consuming, moving and storing of your company property only as authorized by your procedures.
For example, it would not be a good use of your company assets if employees were using them for their own personal gain. How would you feel if your employees (which might be you yourself) are adding undue wear and tear to your company truck, saws, or other pieces of equipment? Worse yet, how would it affect your company (and your pockets) if employees misuse and abuse your material such as paint, cables, lumber, or whatever your materials consist of?
Establishing well-defined utilization procedures and processes enable your company to separate business expenses from personal expenses while reducing the risk undertaken by your company.
Conducting internal audits/assessments/analysis of your asset utilization can help reduce waste, and increase effectiveness; all of which increase your bottom line and profits by reducing your costs.
It should go without saying that companies often seek to increase profits by reducing costs. Increasing profits should not, however, mean decrease value-adding expenses such as conducting preventive maintenance on your assets. Truth be told, it is often more expensive to replace your equipment than it is to maintain it. Establishing a well-rounded property/asset management system includes a thorough maintenance plan. This maintenance plan should include the identification, disclosure, and performance of normal and routine preventative maintenance (to include calibration) of your equipment.
The scope of your maintenance plan will vary by the intricacy of your equipment, but most commercially off the shelf items (equipment you can purchase commercially) includes a preventive maintenance plan you can easily track on a periodic basis.
Use my workshop as an example: our vehicles’ preventive maintenance plan is nothing more than the OEM recommended maintenance which we log on an excel spreadsheet and review monthly. Preventive maintenance for our woodworking equipment varies by use, all of which are also maintained on a simple spreadsheet and evaluated monthly.
As with most businesses, planning of byproducts, waste, and end item lifecycle can make or break a company. What type of waste (scrap, material waste, hazardous, etc.) are you creating, and how do you dispose of it? Is there a way you can benefit or profit from the waste you’re creating?
For example, one of my companies repurposes pallet woods and creates rustic wooden items such as clocks, beer totes, and wine racks. Material scrap such as metal shavings can be sold to a scrap yard for a few dollars.
Lastly, you may be able to gift or donate items that are excess to your needs and perhaps earn a tax deduction. Did you upgrade your computers or lawn mowers? Did you acquire a new printer, an upgraded trailer, a new bandsaw? You get the point. Can you think of a way your business can reduce waste and maximize profits?
Lastly, a very important part of controlling the property and assets in your possession includes contract close-out. Did you furnish your vendor with a forging/casting, tools, equipment, material to accomplish a job? Who has the rights to these items at contract completion? Did you submit the final payment to your subcontractor/vendor?