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Tips for making the right equipment purchase Add to ...

In economically challenging times, it's more important than ever to buy equipment wisely. The right equipment can help your company weather economic downturns, while a bad purchase can hurt your ability to compete. It's crucial to analyze the pros and cons of each purchase, including the potential return on investment. Sometimes, buying new equipment may not even be the best option; it may be wiser to lease or rent, or to avoid acquiring machinery entirely.

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Still, don't fall into the trap of avoiding equipment purchases simply because the economy is volatile. The right equipment can improve your processes, productivity, capacity to innovate and bottom line. But to get those results from a major capital investment, you need an investment plan that addresses both your short- and long-term needs. Not only will you save time and resources, but you'll also avoid costly quick fixes.

Assess your business reality

It is important to understand your objectives. Are you looking to increase productivity? Will this new equipment make you more successful in the marketplace? Will it help you stay ahead of your competitors? Can you upgrade instead of buying new equipment and still get better performance?

Be sure you have answers to these questions before you buy. Avoid being influenced by aggressive marketing campaigns that make unrealistic claims.

Get an external point of view

Depending on the scale of your investment, it may be worth working with an external consultant who can ensure you make the most of your purchase by helping you assess your needs. Initially, you'll be looking at important factors such as capacity, employee usage and current resources. The most common practice is to do a cost-benefit analysis, which helps you justify your purchase and determine the pros and cons.

If you're in manufacturing, you may use an asset utilization ratio, which measures your ability to get optimal results from equipment and other assets. The premise is that more efficient equipment will give you better results.

Be innovative

In today's competitive business world, being innovative in everything you do is key to success. Innovation is really about responding to change in a creative way; one way to do this is by acquiring equipment or technology that helps you improve your efficiency.

Your new equipment might help you streamline your operations and create better products and services that appeal to a niche market, for instance, or it might help your research and development efforts or by improving customer service. It's always a good idea to let your customers to know that you're investing in innovation; it's a clear message that you have their evolving needs in mind.

Look at your business as a whole

Rather than making isolated purchases, look at the overall needs of your operations. Short-term purchases without long-term plans are costly and may not yield the best results. An external consultant can conduct a review of operational processes to help you fully understand the way your business works. This review enables the consultant to devise a sound plan that ensures your operations run smoothly and don't generate waste.

Creating such a plan helps you focus on improving one area of your business at a time, rather than tackling an entire process. Ultimately, you could improve turnaround time, efficiency or other aspects of your business. If you discover you don't need to buy new equipment at all, you might then be able to use the money you've saved — or avoided spending — to make other investments in your firm.

A consultant can also help you anticipate human resources issues arising from new equipment. For instance, if new machines make some jobs redundant, will you be able to move affected employees to other positions in your company? Will you face increased costs for severance pay or retraining? Do collective agreements affect your ability to reassign workers?

Another question worth asking is whether the equipment you are replacing could be used somewhere else within the company. Often, for example, less powerful computers can be reused in departments that do not require high-performance machines. Likewise, in the area of electronic data processing, the newest technology is not necessarily the best. To avoid useless setbacks, businesses often purchase the second or third version of a new software package, after the first buyers have discovered the bugs. Ask yourself carefully whether the new features offered by more technologically advanced equipment are really of use to you.

Shop around for suppliers

The Internet gives you access to a wide range of specialized equipment companies, so take the time to browse. Check out newsletters targeting specific industries, and attend trade shows where you can get some hands-on time with equipment. You can also contact industry associations for more information. Don't let price alone guide you in your supplier decision. Also consider aspects such as post-sales service and a supplier's reputation, and get references. If you're a loyal customer, you can ask for better warranties or an extended customer service plan.

Keep training in mind

All too often, entrepreneurs don't consider the time, money and resources required to train employees on new equipment. You want to avoid the productivity drop that occurs when employees take too much time to adapt to new technology or processes. If the equipment is new or has new features, you can assume employees will face a learning curve. It's important to head off problems by ensuring that you have the financing in place to address the resulting downtime. You'll need to block off time to train employees and still be sure that your operations can run at capacity.

Know your financing options

Every method of financing has advantages and disadvantages, so carefully evaluate each option. The factors to be considered vary from one company to the other, depending on your company's credit record or line of business.

  • Purchasing enables you to own the equipment as soon as the transaction is completed. Your company amortizes the cost over the lifespan of the equipment. It may be possible to get financing for more than the purchase price. BDC, for example, offers up to 100% financing for the cost of the purchase and the possibility of additional financing to cover the cost of installation, training and transportation.
  • Leasing the equipment for a specific period, can make your payments lower than they would be if you purchased the equipment. However, you do not own the equipment, and you will have to wait until the contract ends to buy it if you wish to do so. The price you pay at the end of the contract may be lower than the initial purchase price would have been, but since you've also been making lease payments, this option may cost more in the long run than others. Depending on the structure of the lease, your payments may be included as part of your operating costs.
  • Renting option may be appropriate for equipment that quickly becomes obsolete or is needed for a specific project. Rented equipment is not considered a fixed asset, so you can quickly exchange or return it with minimal cost.

Think safety first

A healthy and safe work environment means your employees and your company can be more productive, and this rule applies to your equipment and technology purchases as well. Your suppliers are responsible for selling you equipment that can be used safely, but you are responsible for ensuring that your employees follow safety rules. For more information, visit Workplace Health and Safety, a site run by Human Resources and Skills Development Canada.

You may also want to ensure that office equipment such as furniture is ergonomically designed to reduce employees' risk of injury and discomfort, while enhancing productivity. Two ergonomic design standards apply to office equipment such as computers: ISO 6385 (international standard) and the CSA Z412 Guideline on Office Ergonomics (Canadian standard).

Keep it green

When purchasing equipment or technology, be sure that it's energy efficient. Not only will you be saving money, but you'll also be contributing to the health of the planet. Research the environmental impact of your new equipment and find out how to dispose of your existing equipment in a way that minimizes its impact on the environment.

Investing in the right equipment is a complex task. An external consultant can help you see the big picture and plan your purchases so that your new equipment supports your company's ability to thrive in challenging times.



Content in this section is provided in partnership with the Business Development Bank of Canada. BDC provides entrepreneurs with financing, venture capital and consulting services. To find out more go to BDC.ca.

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