When I posted about financing lab equipment last time out, I stated that it’s good to finance equipment that isn’t directly tied to profit. The thought being that if the equipment isn’t going to boost your bottom line right away, it’s clearly best to finance it over time.
And while that is true, the reverse is also true. It’s also great to finance equipment even when the equipment in question is going to immediately impact your bottom line in a positive way.
There are cases where a piece of equipment will pay big dividends from day one. Think of a tree service finally adding a large bucket truck. They are immediately jumping from the small jobs to the bigger ones – that’s a profound impact. I’ve known companies who have doubled or even tripled their revenues by adding one crucial piece of equipment. A bucket truck. A new delivery vehicle. A new machine that makes your manufacturing process 25% faster… these are all things that can have an immediate effect.
So why finance equipment in these cases? Because it may result in a positive cash flow every month, without any outlay. In other words, if you pay cash for a 45k widget maker, and it results in $2,000 of new revenue a month, you will need 22 and a half months before you break even. That’s almost two years “in the red”.
But say you finance that widget maker over 3 years, with a payment of 1400 a month… you are going to profit $600 a month until the widget maker is paid off (then you profit the entire 2k a month). You “broke even” right away, and were well in the black the entire time. And we haven’t even talked about Section 179 yet.
I see this all the time. The numbers will always work in your favor. Even if your new revenue isn’t quite as much as your payment, it’s still better for your bottom line to finance equipment.
There is no bad time to use equipment financing. Like all the cool kids say: “it’s all good”.