For those of us who attempt to justify equipment purchases, and most don’t, there’s one big problem. We usually consider only one purchase opportunity at a time. That way if the investment pays for itself then we do it. Problem with that is that we ignore the better investments and end up with a mediocre performance. What we should do is compare all our opportunities at once and select the one that will pay us the most, the fastest. Here are some other considerations as well.
There is never such a thing as an emergency equipment purchase. Usually, I see a salesperson presenting the owner with special pricing if purchased by some deadline. I then get a call to help “justify” the purchase. Is this the next most needed piece of equipment? The owner has never considered it that way. All they know is this is the piece they can get a deal on now and the salesperson is pressuring them to buy.
Rather than wait for this full court press, make a list of equipment that you need. All of it. From computer software to digital presses to bindery equipment. List everything you need for the foreseeable future. Get a ballpark price but don’t sink into analysis paralysis. There’s plenty of time for that later.
Now prioritize based on what you know now. This isn’t going to be a perfect list, but it will give you a good sense of what you need more and what you need less.
Keep it handy so when you’re approached by the salesman, you can see where the equipment ranked in terms of need when you were cool and calm.
Consider opportunities that rank high, ignore opportunities that don’t rank at all unless you just want to gamble. However, that’s not justifying equipment.
The second biggest problem is we ignore replacement equipment. We’re always looking for new and expansion when we often forget that it’s the equipment on our floor that’s makes us money now. In the old days we were always wanting to replace 12×18 format presses with 25-inch presses, forgetting that they serve only a similar purpose and aren’t exact replacements for each other. That’s how so many printers ended up with large format offsets when the world turned to digital presses.
The third biggest problem is we focus on buying what we want and not what we need. Like the second biggest problem, we need to buy equipment that will have impact on our cash flow now, not someday. What does the purchase do to your checkbook? How much money do you have to put out, how much will it create that goes in?
Equipment purchase decisions are financing ones. You put your money into this equipment to obtain a payback and compare it to a second opportunity. And financing doesn’t just mean payments. If you have a $1,000 payment dropping off and haven’t died, doesn’t mean you can obligate yourself for another $1,000 payment. Learn to be smarter than that.
How best to sort all of this out and know what kind of revenue to you can anticipate? Use the Payback method of Equipment Justification. What’s that? It’s too much to define in this short space, but if you’re really interested, click over to https://register.gotowebinar.com/recording/6587182260382043659 and view my webinar recording on the subject.
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Tom Crouser is chairman of CPrint International and president of Crouser & Associates, Inc. Message him at firstname.lastname@example.org or call his cell (304) 541-3714.