What are your company's spare parts really worth? If valuing spare parts inventory isn't the first thing that crosses your mind when it comes to keeping your business in operation, you're probably not alone. However, despite being a less than glamorous part of your business, your spare parts can actually tie up a large portion of your business assets. Knowing the value of that asset helps you make smart decisions on asset recovery and what to do with outdated parts that may do better sold and replaced for your business. Here's a look at several ways that having your spare parts inventory valued can improve your company's position.
5 Ways That Valuing Spare Parts Inventory Benefits Your Bottom Line
- Is it capitalizable or is it prepaid parts? This is one question that is best answered based on the part's value. If it's gone up in value, it could be capitalizable. If it's lost or maintained value, it can be expensed as a prepaid part instead. Whichever approach you take to keep your books up to date, having an accurate value for the part is vital to determining where its overall place should be in your accounting system.
- Are your books accurate? Accounting inaccuracies are one of the top reasons people have valuations performed on all kinds of assets, because parts that are expensed or capitalized may not reflect an accurate value in your books. If they've been depreciated, gained value due to difficulties in production or similar issues, your books may not reflect accurate numbers.
- Can you leverage the value of your spare parts? If you have an extensive spare parts inventory, such as that which might be kept by an appliance repair company, those spare parts have value, which you can leverage to grow your business. Imagine securing a loan for a new repair truck this way, as the assets only go away when you're generating more income to pay the loan.
- Is it worth keeping the spare parts around anymore? If the equipment that the spare parts have been stored for has been sold or has become obsolete, there may be no reason to keep the spare parts around. In this situation, selling those parts and either purchasing parts for the equipment you currently use or leveraging that profit for other uses may be a smart way to manage your company's assets.
- What condition is it in? If your spare parts inventory is rarely checked and has parts that can degrade, such as rubber dry rotting or plastic becoming brittle, it may not be worth what you think it should be worth. This means you'll need to replace it at expense rather than having it ready to go when it's needed most, delaying production and wasting resources.
By taking the time for valuing spare parts inventory, you can effectively leverage the value of these parts in your overall business plan while realizing accurate figures in your books at the same time. However, the valuation process can be difficult, subject to many shifting market forces that you may not have considered. Using a certified equipment appraiser to determine the value of your spare parts inventory sets you up for success, with a verifiable report of value that holds up well to strong scrutiny in a wide range of situations.