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Equipment Funding & Your Small Business – Part 1

Sep 21, 2015

Part 1 – In this blog, you’ll discover the main consideration points related to equipment investments and your small business. Click Part 2 to read the second post in this series.

As a small business owner, you know equipment is the backbone of your operation. Without it, you have no infrastructure and none of the tools you need to drive your business.

Getting started

Because equipment typically represents a major expense, many small business operators struggle with the important financial decisions around equipment repairs and purchases. If you spend money to repair or replace your equipment before it’s truly necessary, you can send yourself into a cash-flow tailspin. Repair too late, when replacement would be a better option, and you might be throwing money away on a lost cause, or worse, lose revenue due to equipment being out of commission.

Upgrading is another important consideration. Much of today’s technology changes at a dizzying pace, and you don’t want to be left behind. But how can you know when it’s time to upgrade? When should you try to pay out-of-pocket, and when should you simply lease your replacement items or finance the purchase in order to take your business to a new level?

Because small and mid-size businesses operate with smaller budgets and narrow margins, poor equipment investments are a serious risk. In this guide, we’ll discuss how to assess your options and choose between repairing, replacing or upgrading. We’ll also help you decide when equipment leasing or financing are useful options.

Important considerations

Start with the end in mind
Having to update your equipment every few years is a simple matter for larger businesses, which have the equity and margins needed to make larger unplanned investments. As a small business owner, you need to approach your equipment investments with care and creativity. When possible, plan for growth from the outset.

Expand slowly
Avoid “re-inventing the wheel” with your business operations. Changing equipment often is a result of poor planning and erratic spending. Instead, when possible, try to buy furniture that is modular and technology that is expandable. Having those options available will save you a lot of time in evaluating alternative technologies, while also helping you get the most out of your current technology.

Plan around longevity
How long will a given piece of equipment continue providing useful work to your daily operations? Several research institutions in the US regularly release guidelines for business owners on equipment life expectancy; these are assembled from large data sets collected by experts. Set aside some time to make good use of these guidelines.

Revenue potential
Which pieces of equipment are essential to revenue creation in your business? How long can you get useful life out of your technology before you’re spending more on upkeep than you’re gaining from production? When that line is crossed, it’s time to decide between a replacement and an upgrade.

Consider simplicity
In many (but not all!) industries, you don’t need expensive furniture or cutting-edge technology to run a successful business. New and budget-minded small business owners should avoid falling into the trap of seeking the best and latest simply for the sake of novelty and superficial appeal. At the same time, having quality, dependable equipment is well worth the investment and can make all the difference to your competitive edge, so approach this balancing act with care.

Click here for series part#2 where you’ll be able to review some common types of equipment.


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