When it comes to investing in new equipment, many business owners only think about purchasing when their current equipment completely breaks down or they have an immediate business need that requires a new piece of equipment. This reactive purchasing habit can create extreme stress and result in paying more for the equipment because of the urgent need to get the equipment in action.
With any major purchases, when you buy can have a profound effect on your business operations. It’s easy to put off buying or replacing necessary business equipment when it’s not so easy to understand the useful lifetime of your equipment. There are many factors that can help you plan ahead for when you should buy equipment. The reasons listed below are a great place to start.
Paying too much for repairs
All machines require upkeep, but your equipment should not be breaking down regularly. It’s not common practice to complete maintenance on a car beyond the cost of purchasing a new one, so don’t get trapped into doing so with your equipment. Not to mention, the time lost when your equipment is down is costing your company and likely slowing down other parts of your business. Have your financial advisor run a report on your repair costs and see just how much you are spending on these sunk costs, you aren’t adding value to the equipment by paying for the repairs. Consider if it would be better to invest in a new machine over dealing with fixing equipment that’s no longer best for your business.
Unreliable and inconsistent quality or efficiency
Consistency in speed, quality, and design are essential to your company’s image and reliability to your customers. Being reliable creates trust between you and your customer and incentivizes them to return for more of your business. If your equipment struggles to give you standard results every time it’s in use, it could be doing your business more harm than good. New equipment can help you streamline operations and ensure that you’re not wasting time, money, or resources. Replacing equipment every three to five years ensures your replacing equipment before it has the opportunity to cost you more money.
Renting for so long you could have owned the machine
Renting over time is guaranteed to be more expensive than owning. Sometimes the thought of committing to a large equipment purchase results in equipment rental purchases that cost the business more than originally anticipated. If your need is truly temporary, this may be a good option, but if your business is continuously renting, it could be hurting your bottom line. If your business is using the rented equipment on a monthly or even yearly basis, have your finance director give you the cost difference of renting versus owning. Putting money into an asset rather than throwing it away is always a better decision.
Outsourcing work that hurts your cash flow
Outsourcing work is a very common practice, but don’t be fooled into thinking it’s the only way to get the job done. Purchasing new equipment and training an existing employee on it’s functions could cost less over time. If your business is outsourcing essential parts of your business operations due to a lack of equipment, it’s likely time to make a purchase. Similar to the issues with renting for extended periods of time, outsourcing can harm your cash flow, and if your partners are unreliable it could be slowing down your business. Bringing tasks in-house can remove any potential bottlenecks and save your company money.
A few more reasons you might consider as to when is it time to get new equipment:
- Your equipment is old, while it works, it is very outdated
- Opportunity to expand your products or services and bring in more revenue
- Automation; could adding a piece of equipment free up time for yourself or an employee
- Tax incentives such as Section 179 or leasing to reduce your taxable gross income
- Remain competitive in your industry
If you find yourself realizing you need to make a purchase, the next steps include deciding whether to buy new or used and where to buy your equipment. Equipment purchasing options include equipment financing which is a great way to reserve your cash flow and prevent expensive upfront costs. See what a payment would be or check out American Capital Group’s equipment financing solutions to get started.