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What are Operating and Non-operating Assets?

by Maxine Harrison on November 25, 2021
 
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Operating and non-operating assets are both part of what makes your business run. You can think of them as the separate but connected parts of a building. They’re the bricks, cement, drywall, and fixtures. Together, they deliver a structure that is safe, secure, and reliable. 

But is every part equally important? Should you place the same importance on non-operating assets as operating assets? How can you decide how much your non-operating assets contribute to your organization’s overall valuation? 
 By looking at the key differences between these asset types, we can better understand both what they are and why they matter. 

What is an operating asset?

Operating assets keep businesses functional. They lay the groundwork for the buying and selling of goods and services, the generation of profits, and the promise of a business’s longevity. Put plainly, the integrity of company operations is in question if any operating assets were ever lost, damaged, or otherwise defunct. 

Companies put extra emphasis on managing and protecting operating assets because their very existence depends on it. Leaders must ensure the replenishment of inventory, preventive maintenance of machines and vehicles, efficient repair of equipment, solid relationships with vendors, and the hiring of skilled labor. 

Operating assets include: 

  • Computer hardware 
  • In-use real estate 
  • Vehicles 
  • Machinery 
  • Furniture 
  • Fixtures 
  • Internal and external workers 
  • Raw materials 
  • Inventory
  • Cash 

The bottom line is that a business experiences a cascading negative effect if any or all operating assets stall. When machines fail, so too does the on-time delivery of goods. When you can’t send work orders, the team doesn’t complete the required repairs. A frenzy to pick up the slack ensues when workers aren’t scheduled. In the end, proactive asset management is critical to the stability of a business and its reputation.  

Industry leaders know the importance of identifying and protecting operating assets with maintenance and management strategies that ensure uptime. Today, more are moving toward cloud-based, mobile asset management software to track assets, manage work orders, and schedule preventive maintenance. Once they can study data trends, they can fine-tune their programs, implementing the right inspections, tasks, and schedules. They also know which vendors are the most reliable and the most cost-effective. 

What is a non-operating asset?

A non-operating asset is an asset that is not essential to a business’s day-to-day operations. Non-operating assets are ancillary; they may add some value and potential for future revenue, but businesses do not include them in their financial analysis. However, they sometimes do include them in an overall valuation. 

Companies value non-operating assets after deducting related costs, such as income taxes and fees. They then take what’s left over and count that toward the overall net worth of the business, usually separately from operating assets.  

Non-operating assets include: 

  • Vacant lots and unused land 
  • Rental income  
  • Real estate investments 
  • Unused or obsolete equipment 
  • Uncollected loan amounts 

Non-operating assets might serve as a means to generate extra revenue for a company during economic downturns. For example, a business might purchase real estate near an up-and-coming residential neighborhood but may not use the space right away for its core operations. Business leaders might decide to rent out the space on an interim basis as an alternative revenue stream.  

The importance of non-operating assets comes into play when operating assets break down — they serve as the proverbial lifeline to a business if the expected cash flow generated by operating assets stalls. For example, you may make the decision to invest in government securities. If the price of raw materials spikes due to some unforeseen factor, you can quickly turn these securities into usable cash, allowing the business to mitigate any potential disruptions in the supply chain and keep operations intact until prices normalize. 

Non-operating assets are not immune to scrutiny and can serve as liabilities to a business. For example, a publicly-owned entity might have dividends that they have yet to pay out to shareholders. The amounts remain on the books. Similarly, money obtained from business loans counts against the business until the company pays them back. Land that’s not utilized might incur tax liability.  

Many companies try to manage non-operating assets just as intently as operating assets because they reflect potential profitability. They want to maximize these assets’ financial power by knowing exactly how they might fit in if and when the unexpected happens. Waiting until these assets are actually needed to keep the business afloat may work against the business and increase financial risks. 

How can EAM software help you see maximize value from all your asset types?

The best way to understand how well operating and non-operating assets are working is to actively manage and evaluate associated key performance indicators. With a powerful always-on solution like ManagerPlus© Lightning, you can see how each asset is performing at a glance. Gain important asset details like the ratio of preventive to reactive maintenance, the total cost of ownership, and asset history. Understand the more granular aspects of your operating and non-operating assets by keeping a detailed account of work orders, vendor relationships, and more. You can make data-based decisions about your business’s performance along with an accurate valuation based on what you choose to track within the software.  

You may think at the onset that a certain asset is cost-effective and makes sense for your business. But Lightning might supply different data as you continue to add cost information over time. Perhaps this asset is a set of raw materials that you need to purchase in bulk. Perhaps it’s an old piece of machinery that needs to be upgraded to a faster, more efficient one. Having this data at the ready will provide you with a clear picture of where your business stands and what decisions you should be making to promote ongoing success.  

Next steps

Set up a call with one of our experts to discuss how Lightning can help you transition to a new, more efficient way of working. 

Summary

Operating assets, without a doubt, are your business’s lifeline — they’re the necessary components that keep your organization intact. They’re what keeps the bills paid and customers happy. In contrast, non-operating assets may not serve an immediate purpose, but you need to track them if you want to maximize their value to the organization.  

What happens if there’s a major event that takes one of our operating assets offline? How can one of your non-operating assets fill in? The answers to these questions lie in the data gleaned from effective asset management. Having an asset management solution like ManagerPlus Lightning ensures that the business stays in the black.

Maxine Harrison
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Maxine Harrison

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