Small Business Equipment Strategies to Preserve Cash

These ideas are a subset expansion of the blog post, US Small Business: Cash Flow Strategies for 2011, originally posted 4/14/2011, to elaborate on Business Equipment strategies

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Small business owners are scratching their heads these days and wondering if it is now safe to actually grow their businesses.  Many are seeing rising sales for products and services, but are skeptical as to whether this good fortune is here to stay.  So now, the rock is the customer orders, and the hard place is the capacity to deliver on customer promises, and the small business owner is smack dab in between.

One side in Washington says things are coming around, yet seems to consistently do everything possible to punish small business.  This small business owner says cash is king, and if you don’t have a cash flow strategy, it’s high time you get one.

The Big Picture

According to the Business Roundtable’s first quarter 2011 CEO economic outlook survey, CEOs of America’s leading companies anticipate higher sales and plan to increase capital expenditures and employment over the next six months (Monitordaily.com, April 2011).  Big business is spending.

Yet the March Discover Business Watch reported that the outlook for Small Business is more pessimistic, with 54% believing the economy is getting worse, with 42% of survey respondents saying their own personal business conditions are worsening, an increase from February.

Conflicting?  You bet.  Who do you believe?  Sometimes the reality is, big business CEOs have stockholders to worry about, and that’s a factor when they answer poll questions about the future.  Most small business owners, well let’s just say they are a bit more free to speak their minds.

Uncertainties Remain

Here are two things you can pretty much take to the bank, and they involve uncertainty for Small Business, and uncertainty is worse than bad news, because it is difficult to formulate and act on a plan.

  1. Health Care – No one knows how the current Obama-care will affect small business overall, but the low-down ain’t good.  However, this issue is still hotly contested in Washington, with GOP moves to repeal or de-fund the most punitive elements of the law.  What we do know is that this uncertainty is driving health care insurers used by small business to raise premiums.  Translation: the cost of hiring new employees is basically unknown in total, and many small business owners are being forced to cut their health care benefits (there is actually a provision in the law that makes this economically appealing), making them less attractive to top talent.
  2. Energy – The same conditions of $3.50/gal at the pump that had an assassination watch out during the Bush administration are happening again in 2011 with little notice from the media and the public at large as America’s calluses have grown thick with de-sensitization.  What small business owners don’t know is how drastic their energy prices for plant electricity and natural gas will change, but they do know proposed environmental legislation like Cap and Trade will not bode well for their price per kilowatt.

External Pressures on Small Business

Many sources say businesses need to raise prices due to rising costs of raw materials and energy.  Sounds great, but in a recessionary environment, you know that customers will price shop you to death and place downward pressure on your prices even while your costs are rising.  Sorry about your luck.  You can’t simply cut your staff in half over and over again and demand they do more with less.  At some point, you need to become more effective—dramatically so!

Getting the Work Done without Hiring

If your business is seeing increased sales but you’re hesitant to pull the trigger on growth, realize that the work still needs to get out unless you want to walk away from it.  For many small businesses, this is a luxury they cannot afford.

Upgrading Obsolete Business Equipment

So what do you do?  You can hire and help out US Employment, yet we know with the uncertainties in Health Care costs alone this tactic is fraught with risk for your business.  One course of action is upgrades in automation and equipment.  Business equipment doesn’t take coffee breaks, show up late for work, or lip off to its supervisor provided it is in good working order.  If you business equipment is taking breaks due to age and dis-repair, you need to take a look at what that is costing you.

For companies whose products or services have to do with quantity of output, poor speeds and feeds of outdated, obsolete equipment put you at a competitive disadvantage.  With the downward price pressures we talked about earlier, you may be forced to get a lot more efficient, and one way to do that is with upgrades in business equipment.  What’s worse, you’re making up for less than optimal equipment performance with labor costs, costs that have become more uncertain than ever.   More parts per hour, be they photocopies or widgets, drive down your cost of delivery, allowing you to lower your pricing while capturing a few margin points for yourself if you do it right.

Capital Expense Tactics

Business equipment can range from PCs to industrial production equipment to forklifts to software.  Great news again—in bad economies like the one we’re trying to recover from, businesses close and sell off assets to create cash, and you can find super deals on used equipment that is still an upgrade over what you may have and lower your costs to upgrade.  Do a quick search of eBay for industrial equipment and you’ll see what I mean.  There are also services, uncommon but out there, who will source, specify, and negotiate new or used equipment for your business.  The good ones charge for writing equipment specs and get paid a commission off of list for negotiating your deal.

If you buy into the need to upgrade equipment, it is a good time to consider financing that equipment.  Why?  Right now, asset based financing via Equipment Leasing is offering very low buy rates compared to years past.  This is a result of the economy and still low interest rates.  Getting qualified, however, presents a larger challenge as banks are still hesitant to dole out money to anybody.  Your accountant can provide you with the tax benefits of leasing (off balance sheet, payments fully deductible, etc.), but let’s just examine cash flow.  Buying the equipment outright means spending tens of thousands of dollars out of working capital that you might not have available.  With the uncertainties we talked about earlier, I’d be looking to build cash reserves month to month without the sacrifice of not getting the work done.  Equipment finance via lease remains the least expensive way to get into business equipment, meaning having it in your building or offices performing and earning revenue, increasing your competitive advantage and lowering your delivery costs.  In many cases you can start using $50,000-$100,000 worth of equipment for the first two monthly payments on a 5-year lease.

What is Your Business Future?

If you know what this economy is going to do long term, sell your business and play the stock market.  If not, make sure it doesn’t submerge your business while you worry about it.  You still want to move ahead, and, if you’re reading this article, grow your business even in uncertain times.

Look to your business equipment to determine if upgrading or improving it will provide you with a controllable reduction in your cost of delivery and then finance it to preserve your cash balances.  Start profiting from your new capabilities and grow while your competition panics.

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