Running a company is not an easy task. To run a successful company, one has to implement various strategies. From recruiting the suitable employee to keeping the financial health of the company in good shape, from providing good customer service to keeping the latest technologies – it is an endless process. Asset recovery is one such strategy. Companies, these days, have understood that asset-recovery is of paramount importance to their financial health. There are many service-providers that offers this asset-recovery service to the companies. Owners or share holders of a company do not think of their company as a non living entity but as an organic entity which has its own needs to be able to remain healthy. Asset recovery fulfills a part of these needs.
Asset Recovery Explained In Simple Terms
A company needs machinery, computers, tables, chairs, electronic equipment, vehicles and other tangible materials to run successfully. But after a certain period of time, the usability of these machinery and other materials diminishes. This decrease in the usability of the assets happens for many reasons. Oftentimes new technology replaces the old machinery and in other times the assets simply reach their end of life. Again in other times, the purpose that resulted in the buying of assets cease to exist, and hence the assets become useless to the company. This is where asset recovery comes into play.
The term asset recovery can mean- ‘to regain’. But when we are talking about regaining assets we are not talking about recovering the physical assets. What we are talking about is the recovery of monetary assets that were used to buy the physical assets. To achieve this, the work that the process of asset recovery involves is to check whether the values of old assets can be augmented.
The process of asset recovery involves mainly three aspects-
- Identification of the company assets that are proving to be a burden.
- Reusing the assets and thus augmenting their value.
- Divestment or selling the old assets.
Let us discuss these three things in details.
The first thing that asset recovery process involves is the identification of assets which have been lying idle or inching towards end of life. As these assets lie idle, the amount of money that was invested to buy the assets lies idle too, thus increasing the financial pressure of the concerned company. The asset recovery process first identifies these cost-increasing assets. This system of identification also involves examining whether the concerned assets legally belong to the company, what would be the legal implication if the assets are sold and other such legal angles. This initial step is thus quite important.
The most efficient method of asset recovery is to reuse the assets that were bought to fulfill an obsolete purpose by deploying them to that department of the company that can still put the asset to good use. For example, when a software company finds its old computers to be lacking in computational powers, instead of selling them at depreciated price, it may first utilize them in their finance department that does not need too much computational power to remain functional.
Sometimes when similar assets of a company become unusable, the company tries to use the still fit parts of the unusable property to fix another similar unusable property. This is known as cannibalization of usable spare parts. Let us consider two computers of a company, one whose motherboard is damaged and the other whose hard disk is damaged. Instead of repairing or selling both the computers the company may first use the hard disk of the second computer to fix the first one or vice versa. Reusing is the most intelligent form of asset recovery that saves a significant amount of money.
Divestment or Selling of Old Assets
Divestment is another aspect of asset recovery. Divestment means the opposite of investment – selling of unusable or leftover assets to attain financial stability. Both positive and negative reasons can be behind the decision to divest. Let us first consider a positive instance. For instance – a company undertook a ration-card digitization drive in a developing country. For this it bought Hundred Laptos to convert the data into digital form. After the assignment is finished the laptops remain unused. So the company sells those laptops to regain a significant part of its investment.
Negative instances of divestment include selling off the assets of a company that can no longer sustain its business. By selling off the assets the company is able to repay the debt. Oftentimes when company becomes too diversified to manage, it sells off the assets of its non-performing and wind up its functions to focus on its successful endeavors. When everything fails this particular aspect of the asset recovery process is the only way out.
Asset recovery is one of the effective ways of turning the direction of a business from negative to positive horizon.