Should I Buy Equipment for My Business? If So, When?
Investment in infrastructure is something almost every business needs to do at some point. Do you need a new computer system? Do you need new equipment for your manufacturing plant? Do you need new service trucks for technicians in the field? Do you need a new printer/copier? These investments are often substantial, but they’re essential if you want to grow your business.
Question 1: Should You?
Some business owners like to chase shiny, new objects. They’re obsessed with being the first to have a particular product, service or capability, or they just want to have more of something than everyone else.
On the other end of the spectrum, you have business owners who are more conservative. The equipment they have works just fine. Their ways of doing things are just fine. They’re satisfied with their revenue. Don’t rock the boat by adding new equipment to the mix unless it’s absolutely necessary.
Neither approach is necessarily right or wrong – as long as the decision to buy equipment for the business is ultimately driven by how much value it will provide.
Will new equipment allow you to offer a new product or service? Will it allow you to get the product out the door more quickly? Will it make your employees more productive? Will it improve operational efficiency? Will it reduce repair and maintenance costs? Will it provide you with a clear competitive advantage?
Any purchase for your business, including new equipment, should be based on business needs and strategy.
Question 2: When?
From an operational perspective, the only difference between December 31 and January 1 is that you’ll probably be closed on New Year’s Day. From a tax perspective, buying equipment on December 31 or January 1 could mean hundreds of thousands of dollars in tax savings in a given year.
For example, if you buy a $300,000 forklift for your warehouse on December 31, you could potentially expense the entire purchase for that year. If you wait until January 1, you won’t get the tax benefit for a full 12 months. If you want to take the deduction for 2018, the equipment must be purchased or financed on or before December 31, 2018.
To make an educated decision, you have to know the profitability of your company, as well as the current tax law. Do you want to create additional tax loss this year or push off that expense to next year? Because tax laws change from year to year, as they did this year, the timing of equipment purchases can be very important, especially at the end of the year.
For a long time, business owners have been conditioned to believe they should add expenses to lower their tax obligations. However, there could be a point at which there’s no more tax benefit to be had. In that case, you should just push it off until next year unless you need the equipment immediately.
There’s another factor to consider when deciding if you should purchase equipment at the end of the year – discounts. Many vendors will offer special pricing and financing incentives, such as no-interest financing or deferred payments, to meet year-end quotas and reduce inventory.
If you’re ready to purchase new equipment because of the value it will deliver to your business, but you’re not sure when it will make the most financial sense, speak with your accountant. Make sure you weigh all relevant issues so you make the best possible decision.