How to Match Financing With the Equipment Life Cycle

Your business depends on equipment to function, but it might seem like you need a crystal ball to figure out what equipment to buy, when to buy it, how to buy it, how to maintain it, and when to dispose of it. Equipment and machinery won’t last forever, so it’s important to understand how to plan for choosing, purchasing, and discarding your business equipment.

That’s where the equipment life cycle comes in. It’s the process that manages the purchase and maintenance of equipment by implementing sound planning at all stages of the equipment lifetime — from acquisition to usage to disposal.

Read on to learn about the equipment life cycle and how to finance equipment purchases to get the best machinery for your business.

What Is an Equipment Life Cycle or Obsolescence Plan?

Equipment, whether it’s in a factory, office, or construction site, eventually wears out, becomes outdated, or is too costly to repair. Because equipment is a major investment, you should take a proactive approach, building the costs of preventive maintenance, repairs, and replacement into your business’ financial plan.

As part of your equipment life cycle plan, ask yourself the following questions:

• Does our current equipment meet the business’ needs?
• Are there assets that are underutilized or less productive than others?
• How much am I spending on preventive maintenance and repairs for each asset?
• How is downtime affecting the business’ productivity?
• What is our existing equipment’s market value?
• How much would it cost to replace the equipment?
• If the business had updated equipment, how would it change our business operation in terms of efficiency and profitability?
• What is the procurement process like (in terms of time and effort)?

Some businesses use IoT (Internet of Things), automation, software, and algorithms to monitor their equipment’s health and asset life cycle management plan. However, if you’re just beginning your life-cycle cost analysis, asking these questions and crunching the numbers is a good start.

Why Is the Equipment Life Cycle Important for Your Business?

There are several benefits to your business having a strong equipment life cycle management program. Here are some tips for implementing an equipment life cycle plan and an outline of the benefits:

• Catalogue your equipment and its condition. You can use this information to calculate your equipment’s estimated useful life and total cost of ownership.
• Create and implement a proactive maintenance schedule. Researching the manufacturer’s recommended maintenance for your equipment and using that information to create a maintenance schedule will help you plan for equipment repairs, maintenance, and eventual replacement.
• Ensure all equipment meets regulatory requirements. Depending on the equipment, regulations may change over time, so it’s important to build that into your equipment life cycle plan. This will help your business maintain safe working conditions and comply with applicable quality standards.
• Prioritize equipment and machinery replacements. By staying up to date on your equipment’s condition, you can balance your budget by projecting when you’ll need to make new or additional purchases.
• Engage with key stakeholders and decision-makers: Whether they use the equipment, help procure it, or are responsible for its financing, it’s essential to communicate with these individuals about asset management, especially when upgrading or replacing equipment.

Equipment life cycles play a huge role in your business’ operational efficiency and budget. Toward that end, it’s important to make sure that the equipment life cycle plan is communicated to key stakeholders throughout your organization.

Related: Get the Financing You Need to Improve Your Workplace Safety

What If You Don’t Have an Asset Management Plan?

It may seem to make sense to wait for equipment to break down before you decide to repair or replace it, but this mindset could be costly in the long run. If a vital piece of equipment goes down unexpectedly and you have unplanned repair or replacement costs, your business could suffer. Emergency maintenance costs, forced downtime, employee and/or customer dissatisfaction, and rental costs (depending on the equipment) are just some of the possible expenses and challenges that can result from a lack of planning.

Unplanned expenses can lead to lost revenue and may potentially damage your relationship with your employees and customers. Instead, you should be implementing a life cycle plan that plots the end-to-end stages of your business equipment and how you can incorporate financing into that plan.

Match Financing With Your Equipment’s Life Cycle

From photocopiers to heavy machinery, buying equipment outright can put a huge strain on cash flow. Equipment financing can be the ideal solution — whether you’re looking to keep your company functioning at optimal performance or expanding to meet increased demand. If you understand roughly how long each piece of equipment will last and how much it will cost to maintain and replace that machinery, you can make informed decisions about how to finance your equipment.

In some cases, depending on the equipment, leasing might make more sense than financing. Whether you decide to lease or finance a purchase, it’s important to understand all the implications of any transaction you are considering — including the true cost of financing and any special considerations for disposal when your machinery reaches the end of its equipment life cycle.

If you’re not sure which type of equipment financing is right for your business needs, get in touch with our experts. We’ll speak with you to learn more about your company and your business needs. Then we’ll develop a financing strategy that makes sense for you.

Partner With Team Financial Group for Fast, Flexible Financing

At Team Financial Group, we work with clients to identify and customize financing solutions that meet their unique needs. Our commercial equipment financing options can improve your business’ cash flow and overall financial health.

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The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.