When to Invest in the Equipment You Need for Your Business: An Accountant Explains

It can be difficult to know when it’s the right time to invest in the new machinery, technology, or other equipment your business needs. Making your purchases at the right time can drive growth, offer tax benefits, and improve efficiencies. While poor timing can result in cash flow issues and missed opportunities. In this blog post, we’ll outline 3 key considerations when you invest in equipment for your business. 

3 Key Questions to Ask Before Investing in Equipment 

1. Does the equipment serve a specific business purpose?

First, you should ensure your purchases align with your business goals. To do this, you’ll first need to know where your business is headed. Are you looking to develop a stronger competitive edge by improving the product/service you already sell? Do you want to increase your profit margin on your current products by increasing efficiencies? Perhaps you’re considering entering a new market? 

At this stage, you should do some market research and assess your options. Generally speaking, your business is likely to have limited resources, so planning your next steps promotes direction, focus, and better use of those resources. Once you’ve decided on your business goals, you’re in a better position to make informed decisions about the equipment, machinery, and/or technologies you need to succeed.

2. Have you planned the purchase adequately or is it an impulse buy?

With your business goals in mind, you should make a wish list and place the items in order of priority, alongside the cost of the equipment. It’s useful to really think about what additional items you might need to take full advantage of the items you purchase. Reflect on the costs of installation, maintenance, and training your team members on using the equipment, as well as any subscription fees or other ongoing costs. It’s important that you understand the true cost of your proposed purchase before you dive in. 

Then, determine whether you truly need to make the purchase, since you might have other options. You could, for instance, outsource the work until you’re generating enough revenue from that activity to justify bringing the work in house. Alternatively, it might make more sense to lease the equipment. For technologies, it might make sense to ask your staff to “BYO device”.

If it does make sense to purchase the equipment, planning is still key. You can reflect on whether a second hand purchase would meet your needs and, if you need to buy new, It allows you to take advantage of predictable sales or bulk purchase offers. For businesses considering an equipment loan, read our blog post on the topic here.

3. Do you know about the accounting implications of your purchase?

The timing of the purchase of your business equipment can be critical. At the moment, for instance, there are significant benefits being offered to eligible businesses in the form of instant asset write-offs. This write off allows eligible businesses to claim an immediate deduction for the business portion of the cost of an asset in its first year of use, instead of depreciating the asset over time. Depending on your unique circumstances, it may make sense to purchase and use your business equipment before 30 June 2022. 

Your accountant has a wealth of knowledge about the financial and business implications of purchasing the equipment you need. If you have any questions about the timing of your purchases or your business planning, ask us! Our qualified and highly experienced team is more than happy to help.

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