Stretching Your Equipment Dollars
December 1, 2007
(December 2007) Business today depends on high-tech equipment and other types of machinery. Decide whether to buy or lease the equipment you need, and make sure the money you invest in equipment, high-tech or otherwise, is not wasted by misuse and disrepair.
Buying versus leasing
When you need new equipment, should you buy it or lease it (own or rent)? The answer usually involves various factors, including tax breaks, the nature of the equipment, and your personal choice.
Tax breaks. Lease payments are fully deductible business expenses. If you buy the equipment, the cost can be written off-through depreciation over a fixed number of years or, if eligible, with expensing in the year the equipment is placed in service. The dollar limit on the first-year expensing is $250,000 in 2008 (it's set to revert in 2009 to $125,000 as adjusted for inflation).
Idea: Expensing can be used for new or pre-owned equipment (as long as it is new to your business). Expensing can be used even if you finance the cost of the purchase in whole or in part.
Create an equipment maintenance program
Anything that has an engine or motor needs to be well maintained to run smoothly, use less fuel to run, and avoid costly breakdowns. The same is true for all other equipment used in your business, including specialized tools, trade show displays, and other items.
Set up a maintenance schedule to clean and service equipment on a regular basis. Look to the manufacturer's owner's manual for guidance on frequency of service and what needs to be done when (e.g., oiling, belt replacement). Also factor in your usage of the item (high, average, or low); high usage may require more frequent servicing than recommended by the manufacturer.
If there is no owner's manual for guidance, use common sense. The important point is regularly-don't ignore the small items. As Benjamin Franklin noted: "For the want of a nail, the shoe was lost; for the want of a shoe the horse was lost; and for the want of a horse the rider was lost, being overtaken and slain by the enemy, all for the want of care about a horseshoe nail."
Planning for replacement
Create a replacement schedule for equipment based on the manufacturer's owner's manual-use an Excel spreadsheet to view when equipment is acquired and when it is expected to be replaced. Rules of thumb about how long equipment should last:
- Computer: 3 to 5 years
- Printers: 5 years
- Office furniture: 10 years
- Cabinets and shelving: 20 years
Note: Keep in mind that, due to new technology, you may want to replace equipment more frequently to gain the latest bells and whistles or to save energy.