7 Min. Read

What Is Asset Management? Definition & Importance

August 31, 2021

You know what assets you’ve got in your business. And you already know it’s part of your financial reporting obligations. Successful asset management starts right here. See, you’re already doing it!

As your business grows, it may become prudent to start making that additional money work for you through investments. You can do this either as an individual or business. The financial term for doing this is ‘asset management’ and you can either do it yourself, employ investment services or use asset management software.

Here’s What We’ll Cover:

What Is an Asset?

What Is Asset Management?

Asset Management Services Companies

Digital Asset Management Systems

Goals of Asset Management

Benefits of Asset Management

Creating an Asset Management Strategy

What Is an Asset?

Businesses usually have tangible and intangible assets. Tangible assets are actual physical things, like property, tools, equipment, land and vehicles. Intangible assets are things like intellectual property, software license agreements and databases. And you need to accurately record all your current and fixed assets on your balance sheet.

If you’re completely new to this, here’s a quick guide to help you identify all your assets and liabilities.

What Is Asset Management?

In the world of finance, asset management is when investment professionals run your investment portfolio. This means that they research and analyze the markets to mitigate risk, and take well-timed opportunities to make investments on behalf of their clients.

As Brian O’Connell writes in Forbes Advisor: “Asset management is the service of managing a client’s money. At its core, that means identifying a client’s financial goals and then working to accomplish those goals via portfolio management—buying and managing stocks, bonds and funds.”

Asset Management Services Companies

We’ve all heard the phrase, ‘You have to speculate to accumulate’. But few people are willing to risk their hard-earned cash without really knowing what they’re doing. If you’ve got the knowledge, that’s great. But most investors wisely employ experts to manage their assets professionally.

Companies that provide asset management services can have clients that are individuals, businesses, large corporations and other organizations. They aim to meet their clients’ financial goals through successful asset management.

Asset management companies usually charge for their services in 1 of 2 ways. Either with an individually agreed percentage of the investments’ return, or as a fixed minimum annual fee.

They usually have a minimum investment amount, which has previously limited them to working with high net-worth individuals and large corporations. Now there are 2 general types of asset management services companies:

Top-End Firms

These companies provide their investors with a bespoke service. They take a holistic view of their clients’ finances, including their necessary income, liquidity needs and tax position. Given the personal level of service, the preferences of the clients are paramount, including their ethical and moral standpoints. For example, clients can insist that their money is only invested in companies that are actively minimising their environmental impact.

Typically, they have a high minimum investment requirement. As their client, your asset management account comes with a personal financial advisor that handles your portfolio. These often become long-term relationships built on a high level of trust – some even span generations.

This type of asset management company can access a broad range of investment opportunities for their clients.

Specialist Companies for Average Investors

Some companies now specialize in more average investors who want to make smaller investments. They merge individuals’ investments into mutual funds and use a central investment portfolio to maximize your return.

Digital Asset Management Systems

Some businesses use asset management software or digital platforms to run their own internal procedures. This can be a great way to automate your asset tracking processes and keep all the information together in one place. The software’s algorithms then manage the contents of your portfolio.

Usually such digital tools also give you access to a third party, individual asset manager. So you can also talk to an actual human who’ll advise you on your particular situation.

Goals of Asset Management

Whether a company, or digital, the goals of asset management are the same:

Keep fixed and current assets accurately recorded: meeting your liabilities and giving you a clear picture of any inefficiencies.
Mitigate risk
Measure the asset lifecycle cost
Increase the rate of return
Grow your business by making more money

Benefits of Asset Management

There are 2 levels of asset management benefits you can achieve. The first is at business level, where there are several gains from having a tight rein on the assets in your company. The second is at the investment level, where the benefits of professional asset management services are defined.

Business Level Benefits of Asset Management

You meet your liability to accurately record the value of your business assets on your financial statements.

Tracking assets through their full life cycles highlights any areas of waste or ghost assets, leading to greater efficiency. Having this information in one place also improves future purchase decisions because you can easily see what you already have and avoid unnecessary expenditure.

Reporting is made easier because all the current information you need to satisfy HMRC is collected and collated as you go.

Investment Level Benefits of Asset Management Services

It’s like anything, a professional is paid to use their expertise to your benefit. And that’s exactly what asset managers do. They use their skills and experience, alongside all the vast resources available to them, to meet your financial goals. And all within the risk boundaries you initially set together. Asset managers make autonomous decisions about your investments to get you the best rate of return. They do their job, while you get on with running your business.

Creating an Asset Management Strategy

At the moment, if your business is small, it may seem unnecessary to put too much time into effective asset management. But, as it’s already part of your financial reporting, it’s a good idea to decide how you’re going to do it now – before your amount of assets becomes more overwhelming.

You’ve got 3 main jobs to get started on your asset management strategy.

Asset Inventory

You can’t organise something properly until you know exactly what it is. So you need to do a deep stock check and create a complete asset inventory. This means listing each asset’s details; when you got it, where it is and its current value.

Asset Life Cycle Calculation

It’s not just the purchase price that’s involved here. You also need to know the whole costs for each asset for its entire, usable life-cycle. This includes any maintenance, service and disposal costs. Pay particular attention to items with a fast depreciation rate, like vehicles and IT equipment.

What Are Your Aims?

This means setting your financial targets. If you intend to use asset management services, they’ll need to know the financial objectives they’re trying to achieve on your behalf. This is where you dig into how to make money while mitigating the unavoidable risks, and come up with a financial plan.

Whatever size your business currently is, you’re likely to be doing most of the first 2 tasks as part of your usual business admin. It’s exciting to plan how you can use your assets in an investment capacity, as your business continues to grow. And it never hurts to get the thinking done in advance even if you’re not quite ready. Asset management planning should dovetail beautifully with your business’s existing financial plans – with everything working together towards clear goals.