Do You Need to Buy That Piece of Equipment?

Abstract

I will cover some of the factors that should be taken into account when considering the purchase of a major piece of equipment. These considerations should not involve just the original purchase price. Many items come into play during the entire life span of the equipment. Before you invest in new equipment, imagine the expenditures involved during the time you own the equipment, and even how you would dispose of it at the end. I am not qualified to discuss the various tax advantages that may be available to you. Obviously, if you have the choice of when to purchase, and .this choice can be affected by the availability of an investment tax credit, certainly this should co\or your buying decision. The full tax ramifications of a major purchase should be discussed with your accountant. Tax breaks and tax costs are going to be part of your cost:value analysis. I will discuss the type of equipment we buy for the business to generate income and, hopefully, profit, rather than overhead nonincome producing items such as desks for the office. Not all of the equipment we must purchase can generate profit directly. In some areas we are forced to purchase some equipment just to get into the game. Every piece of equipment that you take to the job, however, from the largest to the smallest, should have been priced and sold to your customer with a profit in mind. The key to the purchase of equipment is the income and profit it can generate for you, and for how long. In value analysis, one of the questions to ask before spending money on capital equipment is, would I get better return on this investment if I put it to work in an alternative medium? Sometimes you are forced to purchase equipment simply to maintain your competitive position in your trade area. The competitive relationship is a real one and must be considered in your cost:value analysis. Avoid impulse buying! Impulse buying is the lowest and least intelligent level of purchasing. The buyer should consider his supplier as part of his team, and the relationship should be cultivated as actively from the buyer's point of view as from the seller's. It is far better to spend $40,000 in one place than $10,000 in four places for similar goods. In this manner, the supplier views your business as that of a valued customer, and means it, and when this happens you generally get preferential treatment in service and parts, and your company will get the benefit of technical advice, and help, even if a future purchase is not imminent. It is simply good business for customer and supplier to develop a strong relationship, particularly where major, longlived equipment is concerned, because you are going to need that supplier as time goes by for parts, service, and advice. Don't always shop for the lowest price. Just as it is wise to develop a strong relationship with your supplier, it is also necessary that you permit him a reasonable profit. You need him to be successful, if he is not, he won't be there to help you when you need it. Nothing is quite so frustrating as buying a bargain, only to discover that the seller of the product has gone out of business or vanished into the night. Government intervention in business has become all pervasive lately. They have regulated us without providing reasonable alternatives and made it increasingly difficult for small businesses to function. The technical and legal aspects of equipment ownership available from an informed supplier may be the difference between acting wisely or acting foolishly. Good suppliers belong to trade organizations that have sources of information not readily available to customers. So, choose your supplier carefully, consider him a part of your team, and treat each other with