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If you're buying equipment as a quick fix for a rapidly growing business then there may be a better way to make the most of your investment.
"That equipment purchase can be a costly decision. Entrepreneurs need to anticipate growth and do some long-range planning first," says Dan Daley, Partner, BDC Consulting. Daley has seen many companies unexpectedly pick up new contracts and buy new equipment without carefully assessing their needs. "If you have an unusual blip in production, you need to know whether or not that's just temporary and how new equipment will serve your business on the long term," he says. This is particularly true in capital-intensive sectors such as manufacturing. According to Daley, there are a number of ways that entrepreneurs can ensure that an equipment purchase doesn't drain their companies' cash.
See the bigger picture
When at all possible, the BDC consultant highly recommends that business owners purchase equipment with a long-term plan in mind. For example, BDC Consulting can help companies assess their overall business needs and devise a sound production plan which ensures operations run smoothly and don't generate waste. Rather than buy equipment sporadically, a company can implement a step-by-step plan that might involve a plant overhaul or redesign. "Entrepreneurs wouldn't necessarily have to tackle an entire production line but focus on improving one area of their business," he says. "Ultimately, you could reduce storage space, decrease inventory, improve turnaround time, and use those cost savings for an additional investment in equipment."
Share equipment with other entrepreneurs
Strategic alliances can also benefit companies that want to share knowledge and skills. And in the same way, business owners can also consider sharing equipment, as long as it doesn't adversely affect productivity. For example, a company could schedule the use of machinery to accommodate other users, so that a few companies are footing the bill. A small business could consider sharing basic office equipment and telecommunications technology. "It's just a question of being innovative with your resources," says Daley.
Consider buying used equipment
Buying used equipment can also help companies reduce costs. In the manufacturing sector particularly, equipment can have a long shelf life or at least be upgraded to meet current needs. However, Daley cautions entrepreneurs to check out their purchases thoroughly before buying them. The first question you have to ask, says Daley, is "why is it up for sale in the first place? You may be dealing with a seller who is just getting rid of equipment that is outdated and can't be upgraded," he says. "If the reason for selling is a lost contract then it makes sense to take advantage of the opportunity. But put caution on your side first," he emphasizes.
Arm yourself with knowledge and competitor info
Before you buy, be sure that you're well informed about what's in the market and what best meets your needs. One of the most obvious routes, says Daley, is to check out industry associations and trade shows in order to track new trends. "A lot of those questions can be answered by simply going online and finding out what other people are doing in your field," he says. An innovative way to gain insight into what your competitors are doing is to ask your suppliers. "It may not be realistic that you can visit competitors and check out their equipment and technology. However, you can use your contacts who may regularly visit them on site. You can find out from them what competitors are using," he says.
Buy or lease - a taxing issue
Buying, leasing and renting equipment each have their own advantages, adds Daley. He recommends that entrepreneurs first consult an accountant before making a decision. "There are complex tax issues to consider, so get an expert opinion," he recommends. Business owners need to estimate the impact of having an operating or capital lease, which has a different impact on taxes. With an operating lease, the lessee acquires the property for only a portion of its useful life. On the other hand, a capital lease is classified as a purchase by the lessee. There are many reasons why a capital lease could be considered a purchase. For example, the lease term is greater than the lifespan of the equipment. Or, the equipment would have depreciated by the time the lease has expired and the property is transferred to the owner.
Finance the complete package
When purchasing equipment, Daley stresses that entrepreneurs need to consider additional costs such as delivery, installation, employee training and downtime. "It's not just the physical equipment. You have to be able to address all of your expenses without draining your cash flow," he says.
BDC's flexible financing is specifically designed for that purpose. Clients can purchase new or used equipment that will increase their productivity and ultimately sharpen their competitive edge. The percentage of the total cost financed is based on the company's repayment ability. "When you sit down with BDC, you can work out a flexible payment plan that meets your needs and protects your cash flow." As well, manufacturers, in some cases, can obtain up to 25% in additional financing for costs related to installing and assembling the equipment, training employees and related consulting services.
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