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Determining 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.

Fulfilling Common Equipment Needs

Because almost every business will have these needs in common, we provide some advice about choosing: