Why You Must Account for Depreciation in your Manufacturing Business

Depreciation is a fact of life in manufacturing. Your equipment is constantly operating, which means wear and tear is going to cause depreciation rather than time. Trying to make a budget without accounting for deprecation is going to cost you thousands in the long run. It might even cost you thousands immediately

Here’s how you make it part of your budgeting process.

Use Data to Estimate Future Depreciation

Estimations should never be wild guesses. While you may not be able to perfectly predict what will happen to the market, demand, and your company overall, estimations give you a plan to follow.

Some companies track depreciation by time elapsed. However, it might be more beneficial for your industry to track by usage instead. Some equipment gets used more often, which means it’s likely to depreciate faster. Other, more specialized equipment only gets used in specific circumstances, which will have an impact on how much it decreases in value.

Estimate High, Hope Low When You Account for Depreciation

Learning to account for depreciation might serve you better if you estimate high. What this means is if you have to choose between depreciating more instead of less in your estimates, you’ll want to choose more. If you account for losing more, and then it turns out that much doesn’t happen, it’ll save you money. However, if you account for losing less, and then it turns out your equipment depreciates more than expected, you’ll have lost much more.

Start Tracking Your Equipment Now

Asset tracking for your manufacturing operations will help you stay on top of depreciation changes as they happen, instead of long after the fact.

When you’ve got a comprehensive system, like Asset Panda, set up, put all of your equipment into your database. Put every single piece of information related to your machinery into your records. Act like no detail is too small. You can always edit out things you don’t need later, or put them somewhere most people won’t see them. It’s better to have more than you need than to go without crucial information.

Stay on Top of Maintenance Needs

You can slow the speed in which your equipment loses value by staying on top of maintenance needs. Keeping your machinery assets in top shape means you’re in keeping with work safety requirements and it lengthens the effective lifespan of your equipment.

If you personally don’t know the repairs and tune-ups necessary to keep each station working properly, ask those who work on the factory floor, or other managers. Online research can also help you find recommendations, and industry regulations can tell you the necessary operating levels. When you account for depreciation, a big part of that is also factoring in maintenance requirements. Staying on top of maintenance needs means your assets are more likely to last to their expected life-cycle, instead of becoming obsolete before that.

Set Reminders to Tell You When Equipment Life-cycle has Expired

Like your factory, you have to track dozens of moving parts. Trying to remember when each piece of machinery has an expired life-cycle means you’ll probably forget. Doing so means you could be running against regulations, or endangering your workers, both of which will cost your business.

Instead, set up your asset tracking platform to send you reminders a month or so before the expiration date. This will give you time to order replacements and inform upper management of the need to bring in new machinery. That way, it won’t be a surprise and you can schedule it for when it will be least disruptive to your workflow.