ComplianceLegalOctober 29, 2020

What to consider when equipping your business

Equipping your business encompasses first determining your equipment needs, then acquiring the items you need and finally, using that equipment productively.

Manufacturers, retailers, and service providers all have unique equipment needs. Even between similar businesses, there is no one right collection of equipment and other physical assets that will ensure profits and success. For the most part, you're on your own in determining what types of equipment, tools, furnishings, vehicles, and other items you'll need to properly run your business.

That's not to say that you can't learn from others. In fact, one of the best sources of information about equipping your business may turn out to be your competitors and fellow business owners. You can also consult trade publications or associations.

The key, however, is taking what you learn from those parties and other sources and making the following assessment: "Will it work for me and my business?"

To help you make that assessment and generally address your equipment needs, you will want to first determine your equipment needs, which will enable you to acquire the items you need and then < use that equipment productively in your business.

Determining your equipment needs

The type of business you operate will in large part dictate what equipment and other fixed assets you'll require to properly run your business. We can't say what exactly you should acquire without first knowing what you'll be doing. However, we can provide some general points that you may want to consider before you acquire any business asset.

Acquire only what you need. Our main advice is that you shouldn't acquire any equipment or other fixed assets that your business really doesn't need. By their nature, fixed assets represent relatively long-term investments of capital. In most cases, your recovery of the money you spend in acquiring the assets will span several years. Accordingly, unless you have unlimited financial resources, you should avoid acquiring any asset that you can't reasonably say will bring a significant increase in your profits, efficiency, or productivity over the course of the asset's useful life in your business.

Be especially careful about tying up capital in fixed assets in response to short-term needs.

Focus on function over form. You'll also usually be well-served to focus on functionality over form in addressing your needs. For example, a prior job may have left you with the feeling that an ornate desk and a set of limited edition lithographs are necessary to give your office an air of professionalism. Upon closer examination, however, you may easily conclude that you'll be just as effective, and have a few more dollars available in your operating budget, with less expensive furnishings and artwork.

Performing a cost-benefit analysis. For an item that is relatively inexpensive, you may be able to resolve the acquisition decision by honestly assessing whether the item is something your business really needs as opposed to an item that you merely want or think you need.

For a major asset acquisition, however, you should commit yourself to performing a thorough cost-benefit analysis to determine whether the expected acquisition and operational costs will be fully recovered through expected increases in earnings or savings over the asset's life. It goes without saying that this analysis must be done before you proceed with the acquisition because you'll rarely make a profit when disposing of a non-productive asset.

Keep in mind that acquisition costs go straight to your bottom line. So, depending on your profit margin, a $1 savings in acquisition costs could have the same effect on your profitability as a $5 or greater increase in sales. Or, from a different perspective, that $1 savings will give you an additional $1 to spend on promoting your business or developing your products or services.

Common equipment needs. Because almost every business will have these needs in common, you are likely to need information concerning:

  • communications equipment
  • computer equipment

And if you use vehicles in your business, you should familiarize yourself with the different issues involved in utilizing this type of equipment.

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