In my first article, I discussed the importance of using the 3rd quarter to visit with your banker about the possible need to replace or upgrade fixed assets. In banker terms, we sometimes call this category “CapX.” With tax returns on file and interim financial statements available, the banker and the client are in a good position to make an informed decision.
The purpose in starting the CapX process before the end of the year has multiple benefits to the business owner. It allows time to solicit input from their accountant as to the tax benefits of purchasing a new piece of equipment. With the ongoing changes in the tax code, it’s beneficial to know the tax consequences of purchasing equipment before the end of the year and the filing of the taxes. I’ve received more than one phone call at the end of the year requesting a loan because “my accountant told me I have to purchase something!”
Acquiring new equipment of any kind is often an involved process. Figuring out the specifications takes time—something that is in short supply for any business owner. Knowing the exact needs for your business involves time with suppliers and gathering bids and estimates. Production and shipping schedules often takes weeks and months so the sooner you look in to your needs the closer you are to sourcing what you need for your business.
One area not to be overlooked in the process is trading in existing equipment for new. You may be surprised by the market for your used equipment—find out if it can be traded in towards that new piece of equipment you are looking at purchasing. This also gives the dealer time to find a buyer for your equipment while awaiting delivery.
Capital expenditures are never an easy decision. Not only is there an investment cost but there are various strategic steps along the way that impact personnel, production and future revenue. Planning for the purchase with the help of your banker and other professionals can make the CapX process much smoother for you and your business.