To Buy or Not To Buy, That Is the Question

Steve Logterman

Vice President

Fidelity Bank

steve@fidelitybankmn.com

fidelitybankmn.com

Topic: Banking / Finance

In many ways, economic conditions have improved over the last twelve months.  However, after two lean years, you may feel tentative about making large purchases.  There is good reason to be cautious. At the same time, new equipment and new technologies may be needed to keep up with increased demand, operate efficiently and remain competitive.

There are a variety of reasons that business owners are contemplating investing in new equipment.  Some companies have heard from customer segments that they’ll get more business if they make those investments. Others may have determined that their current facilities and equipment are so old and faulty that they’ve put off the choice to upgrade for as long as possible and must act now. But the rest, probably the majority of small business owners facing a large purchase, are left wondering if it’s the right step to take.

Weighing the pros and cons of a large equipment purchase will help you come to a well-informed decision. Issues to consider include:

• Do you really need this machine? Will the new machine require less maintenance and be cheaper to operate? Is your old machine working fine but the new one will produce less scrap and work more efficiently, saving you time and money?

• How long will it be until you see a significant ROI? A year to 18 months, or many years?

• Do you have the manpower to work this equipment or will you need to hire additional people? How much will that add to overheard expenses?

• Do you need new equipment or will a used machine suffice? Has the technology of this particular machine evolved so much that new is really the only option?

• Is it cheaper to outsource a piece of the overall work because you lack the technology or the worker to produce it in-house? Will you be saving money if you purchase the machine and hire the worker and bring everything in house?

Given the current interest rate environment, financing options should be in your favor. Additionally, good deals on new equipment are available because equipment manufacturers want to move inventory that has been stagnant.  

Many business owners are finding themselves in a position with opportunities they did not have before. For instance, if some of your competitors have fallen off the map, this may be the right time to grab additional market share and a new machine could help you do so. It’s important to find a middle ground between the eagerness to expand and being so cautious that you miss good opportunities. If you’re facing questions like these, talk to your banker and your accountant to understand all the pieces that come together to determine the potential ROI for the purchase you’re considering.