There are a lot of ways you can invest in your business, and many of them can be smart decisions, but you have to be strategic regardless.
Below, we’re going to focus primarily on what you should know about investing in equipment for your business, like perhaps a new slitter rewinder or some other type of equipment, but many of these considerations and benefits can be applied to a lot of other types of investments as well.
1. Understanding Capital Expenditures
Capital expenditure is also referred to as CapEx. You’re using funds as a company to acquire, maintain or upgrade your physical assets. This includes not only equipment but also potentially buildings, technology, or properties.
Capital expenditures are used by companies to make investments or take on new projects.
The financial outlay is a way to add economic benefit to the business in the future or increase the scope and scale of operations.
The name comes from the fact that capital expenditures are payments recorded or capitalized on a business balance sheet rather than expenses on an income statement.
A business has to spend in order to maintain its current equipment and property and also to invest in the assets needed for growth.
If something has a useful life that’s under a year, then it’s expensed on an income statement instead of being capitalized, so it doesn’t fall into this category.
Operating expenses, in comparison to CapEx, are shorter-term expenses that are used by a business for daily operations.
2. Types of Equipment Investments
When you’re investing in new equipment for a business, then some of the different types where you might put your money include:
- Niche equipment: This could be something like what we referred to above—a slitter rewinder. Niche equipment could also include automated equipment if you’re in manufacturing, or if you’re in the restaurant business, maybe production equipment. IT firms might need technical hardware.
There are a lot of different types of niche equipment, and then there are businesses that might not need any at all. When it comes to investing in niche equipment, you want to make sure you’re maximizing what you already offer to customers before you jump into adding equipment so you can expand your products and services.
First, you want to repair what’s broken, then you can improve what exists, and from there comes expansion.
Tech equipment: Nearly every business that’s currently in operation needs tech equipment at some level. Tech equipment tends to become obsolete quickly, though.
You might be upgrading tech equipment every three to five years, depending on what it is, but newer and more expensive technology isn’t always better. Sometimes, the better choice is to upgrade an older piece of technology rather than get something completely new.
- Efficiency equipment: There are investments you might make in your business that will save money in the long term, but they aren’t going to give you a lot of immediate value in terms of productivity or customer offerings. These may not be your top priorities, but once you’re at a point of stable growth and your capital is greater, then you might start thinking about those long-term value purchases.
Benefits of Purchasing New Equipment
Not every equipment purchase will be beneficial. If you aren’t strategic about your purchase, and if you don’t have a clear business reason for making a purchase, then it’s going to be a problem.
If you’ve done the research, though, and you can link the equipment purchase back to a business benefit and need that you have, the advantages of this type of investment can be substantial.
Some of the benefits of investing in your business, especially in terms of equipment, can include the following:
- Improved productivity: If you’re in the manufacturing industry, the improvements in productivity from equipment investments can be especially relevant. Manufacturing technology and trends evolve constantly. If you’re relying on older equipment, or maybe you don’t even have the necessary equipment in-house, you’re not going to be able to expect increases in productivity. New equipment can be critical in many industries, but especially manufacturing, for the maintenance of your competitive edge. Newer equipment can reduce manual or repetitive tasks, freeing your employees to focus their time and attention on things that are more complicated. If you update your equipment, it might also be more energy efficient.
- Competitive edge: Your customers may see the benefits of your equipment investments as you’re better able to meet their changing needs. If you’re smart about where you invest in equipment, then you can offer new services and maybe even expand into new industries. You can be more aggressive in your marketing, and you can adapt to the preferences and changing demands of customers faster.
- Employee safety and satisfaction: You’re investing in the happiness and well-being of your employees when you invest in new equipment. At a time when there’s a serious labor shortage, this can be critical. Your employees need the right tools and training to do their jobs effectively, safely, and productively. The new equipment also provides new learning opportunities for employees.
- Financial incentives: Yes, investing in your business is going to require spending money, but when you fund new equipment purchases, in particular, you might qualify for tax credits and write-offs. There may even be grant programs you should explore. The SBA often offers low-cost financing program options. Do your research before you invest in your business, especially in the form of equipment, so that you can make sure you’re taking advantage of any and all relevant programs.
Investing in your business and purchasing new equipment has a lot of benefits across the board, but it’s a financial commitment. As you would with any business decision, make sure you’re weighing the pros and cons.
You want to think about not just your upfront costs but also the lifespan of your equipment and what the maintenance needs could be. You also want to ensure that you’re considering all available financing options and programs that could be available to you.