Why make a capital equipment decision now?
Julian English talks about the pros and cons of purchasing capital equipment in the current financial climate.
In this special feature on capital equipment we want to provide the reader with a concise and easy to read summary of capital equipment purchasing or outsourcing options currently available to technicians.
Yes, this is the right time to be planning and considering your short, medium and long-term future.
Many of your rivals will not be doing this now, but it will give an advantage, to create an equipment plan to service the needs of your clients efficiently and cost effectively now and in the future.
Is the business case for purchasing strong enough?
It’s a simple question, but many laboratories fail to provide persuasive enough reasoning for purchasing new equipment. Before making a purchase of this size, it’s critical to make sure that it makes sense. You can do this by starting to answer questions like:
- Will this new equipment lead to performance gains? If so, beyond improved efficiency, how will this translate into time saved, costs cut, or further profits gained?
- Does a purchase of this size leave your business financially exposed and has that risk been quantified? Furthermore, if the business didn’t continue as normal tomorrow and for the next six months, would this purchase leave you without working capital?
- Can you achieve a similar level of efficiency/gains by upgrading your existing machinery or equipment? Alternatively, could you purchase second-hand equipment and still achieve the same benefits at a lower cost point? (albeit with a shorter useful asset life)
Whether the questions above or more specific ones related to your business, the point here is to robustly attack the business case for buying new equipment, in the process making sure the purchase decision makes sense.
Additionally, an outside perspective is also valuable to get regarding the purchase (an unbiased opinion from an expert with experience is a valuable one).
How will you finance the equipment/machinery purchase?
Choosing to finance or purchasing outright depends heavily on your business circumstances. And these days the sellers normally offer excellent payment plans.
Of course, you could just purchase the equipment outright. However, when dealing with large capital purchases, it’s worth assessing the options:
- Outright purchase comes with the least admin, but it also means you end up spending a large amount of capital upfront. Apart from depleting your finances, you also become responsible for any general maintenance regarding the machinery/equipment straight away (unless otherwise agreed)
- You could procure the equipment using asset finance. This could be done by getting an asset finance company to purchase the equipment on your behalf and then agree to either lease the equipment to your business for its usable life or opt for a higher purchase option, meaning at the end of the hire period you own the equipment outright (both will charge interest/fees). The main benefit of this type of finance is you can spread the cost over the usable life of the machinery/equipment, and under most lease agreements you won’t be responsible for general maintenance costs (depending on the deal you’ve made)
- You could also take out a standard business or commercial loan to fund the purchase. This enables you to buy the equipment outright but means you have an obligation to the commercial bank or another lender to pay back the sum over an agreed period with terms. The advantage of this is it’s generally a quicker form of finance to setup. If you have a longstanding relationship with your bank, you should be able to negotiate a good deal.
Why buy equipment now
When dental practices and labs initially got back to business, the return was gradual. Then the second lockdown hit.
Practices were restricted on how many patients they could see in a day and which dental procedures they could perform. As such, dental labs received a reduced workflow.
After the lockdown ends, the belief is that boom time is coming. Labs will flood with work. You need to be ready for this.
Everyone knows this to be true, which is why the clever technicians are looking at efficiencies. Large and small labs need to start concentrating on streamlining their processes. They need to reduce the cost and time taken to produce work.
This has meant simplifying procedures and optimising productivity in order to accommodate new protocols and still deliver quality products and appliances to clients. This results in investment in new systems and equipment – and we are back to the main focus of this feature.
Cons of purchasing equipment
Does installation cost? Is it covered as part of a services contract you have with the manufacturer/supplier? Is it part of the sale price of the equipment? Or is an expectation on you to hire a third party to install the equipment?
Whatever the situation, it is essential to understand when you make the equipment/machinery purchase if the installation is included and what are the exact details that are covered under the installation agreement.
Often suppliers attach themselves to one brand.
Labs get attached to particular brands or suppliers when making these types of purchases. There is no room for sentiment when making a cold hard ruthless business decision like capital equipment purchase.
To get the best price, you need to shop around and look at different brands and suppliers. You can then compile all this information to figure out what’s the best purchase for your business (and even use the market information to negotiate a better price with a current/preferred supplier).
We will remember 2020 as a difficult year for most labs and lab technicians. However, that doesn’t mean that there aren’t opportunities to grow in 2021.
By outsourcing services, you can broaden the options available to your clients, quickly and easily.
By making a capital purchase now, you will be ready for the influx of work that is coming soon. You will have scalability – one of my favourite words.
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