5 Things Every Shop Owner Should Know When Purchasing Capital Equipment

“One today is worth two tomorrows. Lost time is never found again. Time is money.” – Benjamin Franklin

Time is money

I was recently a guest on the 2RegularGuys podcast. We talked about several different topics, but we ended the show with a discussion on capital equipment.

What do hotel rooms, dentist chairs, and your business’s production equipment have in common? They only make money when they are being used. When your business relies on a piece of equipment to operate, unused inventory is useless inventory.

Whether it’s a digital printer, router, plasma cutter, embroidery machine, engraver, vinyl cutter, or a Mcdonald’s milkshake machine, it’s likely a major part of your business that you can’t live without. You rely on it every day, and it’s the cornerstone of your business. Keep reading for five things every shop owner should be aware of when purchasing capital equipment.

1. It’s a capital expense; treat it like one

Capital expenses (CapEx, for short) are different from operating expenses (OpEx). According to Investopedia:

An operating expense (OPEX) is an expense required for the day-to-day functioning of a business. In contrast, a capital expense (CAPEX) is an expense a business incurs to create a benefit in the future. Operating expenses and capital expenses are treated quite differently for accounting and tax purposes.

Take advantage of any and every tax write-off or deductible business expense you can. Work with your accountant to figure out how creative you can be with leveraging the tax rules in your region. Determine an acceptable level of depreciation and make sure that equipment is a major part of your balance sheet. Everything that thing does pays for the business; capture every penny. Uncle Sam doesn’t waste any time going after you!

2. Extended warranty

Usually dismissed as unnecessary, this is the most underrated and underappreciated business expense. If you have home, car, or health insurance in your personal life, you need business insurance for the same reason. That means keeping that equipment alive and operating at peak efficiency 24 hours a day. When the machine goes down, so does the business. If your cash register goes down, you can always write orders by hand or take credit cards on your phone. Think about the other parts of your business – can you perform the tasks by hand?

3. “Consumer” products

Express warranties and disclaimers are very common across the United States. As they say, “The big print giveth and the small print taketh away.” If your equipment is not labeled a “consumer product,” there is no Magnusson Moss Warranty Act protection. The warranty is sacred to these manufacturers; they need to protect their costs just like you do. Follow instructions and don’t deviate just to save a few bucks. You also won’t get access to the service manuals or the service parts. They can still keep those from you.

4. Training, maintenance, and access

If you can buy direct, do it. Otherwise, negotiate training and maintenance with a dealer. Everybody wants the lowest price, but a receipt won’t fix your machine for you or make someone pick up the phone when you need help. It’s very easy for multiple parties to point the finger at each other and play the blame game. The longer they argue, delay, and obfuscate, the quicker you are likely to give up and go away. Either you physically get tired of the fight, or your business goes under. If you think legal action will help you, that takes just as long and costs a lot more money. Manufacturers are ready for that; some even have in-house legal counsel. Buy from someone who will pick up the phone.

5. Duty cycles

Every machine is made of components that will fail. A duty cycle is an expected life span usually measured in hours that a manufacturer expects the component to operate within specified parameters. If they are listed as “consumables,” get backups and have them on the shelf. If consumables stop working as they are supposed to, the manufacturer will tell you, “Replace it and see if that fixes it.” For everything else, if there is no lifetime warranty on the part, that means there is an expected duty cycle.

Ask what the duty cycle is: e.g. if your machine has a motor with a 2,000-hour duty cycle and you run the machine 40 hours a week, you can expect to replace that motor two weeks into your second year of ownership, just after the factory warranty expires. See above about buying the extended warranty.

Lost time is never found again

Everybody gets 24 hours in a day. That’s 1,440 minutes. It’s 86,400 seconds. Every second your business is not generating revenue, a second revenue is lost. To be clear: there is no neutral gear in business. You move forward, or you go backward.

Craftsmanship done by hand is an elevated form of art and one worthy of admiration. If you produce hand-crafted items, congratulations, you are operating at another level. For everybody else, you’ve got a machine in your shop helping you produce your products and services. If you can’t switch over to making things “by hand,” then your business performance is directly tied to your equipment.

If you want your business to operate at peak efficiency, you need your equipment to do the same.