When a business owner is considering productive equipment, the conversation can become too focused on two numbers:

“The equipment costs approximately $75,000, and the payment is approximately $1,700 per month.”

Those figures matter. However, they do not tell the whole business story.

The owner may hear another $1,700 monthly obligation and think, “We already have enough payments. We do not need another one.”

That reaction is understandable when equipment is presented like a consumer purchase. But income-producing business equipment is different from a consumer purchase sitting in someone’s driveway. The more useful question is:

What can this equipment reasonably produce for the business after the payment and other incremental costs?

That is the question equipment salespeople should help customers answer.

Start with the business economics, not just the equipment payment

Features, specifications, price and financing payment all have a place in an equipment conversation. But for productive equipment, the discussion should also connect the asset to the business activity it may support.

How many customers could the business serve with the equipment?

How often could it realistically be used?

What services could it perform?

What legitimate opportunities could it help the business identify?

What additional labor, parts, maintenance or operating expenses would be required?

The purpose is not to make aggressive assumptions or force a purchase. The purpose is to help the owner evaluate the equipment as a business investment rather than viewing the payment in isolation.

A business owner should be able to consider both sides of the equation:

• What will the equipment cost to acquire and operate?
• What could it reasonably contribute to the business?

A hypothetical tire shop example

Consider a tire and service shop evaluating approximately $75,000 of wheel-alignment equipment. For illustration, assume an approximate monthly financing payment of $1,700. These figures are hypothetical and will vary based on the business, transaction and financing qualifications.

Assume the shop handles approximately 15 tire customers per day.

Every vehicle receiving new tires may represent an opportunity to check alignment. The purpose of the check is to determine whether an alignment condition exists that could contribute to premature or uneven wear of the customer's new tires. A check does not mean the vehicle necessarily needs an alignment, and it does not mean the customer will purchase one. An alignment inspection may also identify legitimate steering or suspension conditions that could otherwise go unnoticed, including worn struts, ball joints, tie-rod ends or related components.

Use conservative assumptions:

• 15 tire customers per day
• Only 3 customers purchase an $80 alignment
• Only 1 of those vehicles results in legitimate additional repair work
• Assume that additional repair contributes $200 after parts and other direct repair costs
• Six operating days per week

The daily illustration is:

• Three alignments at $80: $240 of service contribution
• One legitimate additional repair: $200 of contribution after parts and other direct repair costs
• Combined illustrative contribution: $440 per day before other operating expenses

At six operating days per week, that equals approximately $2,640 per week. Using an approximate monthly conversion, the result is approximately $11,400 per month in illustrative contribution before other operating expenses.

The $200 in this example is not the total repair invoice. It represents the amount contributed by the additional repair after parts and other direct repair costs. Likewise, the example is intended to illustrate the economics of the opportunity, not predict what any particular shop will earn.

Actual results will depend on customer volume, equipment utilization, service pricing, labor costs, technician productivity, parts costs, maintenance, operating expenses and other factors. In an actual analysis, the business owner should replace these assumptions with the shop's own operating numbers.

Compared with an approximate $1,700 monthly equipment payment, the numbers put the investment into a very different perspective.

The point is not that every shop will produce these results. The point is to do the math using the shop's actual numbers.

The salesperson’s responsibility goes beyond explaining the machine

An equipment salesperson does not need to become the customer’s accountant. However, a salesperson offering income-producing equipment should understand more than the machine’s features, price and estimated monthly payment.

The salesperson should be prepared to put pen to paper, use a calculator and discuss realistic operating assumptions with the business owner.

Questions may include:

• How many customers or jobs does the business handle?
• How often could the equipment realistically be used?
• What does the business charge for the service?
• What additional legitimate services or repairs might the equipment enable or identify?
• What is the realistic gross profit after direct costs?
• Will additional labor or operating expenses be required?
• What does the equipment cost each month?
• After the payment and incremental costs, what could the equipment reasonably contribute to the business?

This is not an invitation to manipulate numbers to justify a sale. Quite the opposite.

The strongest analysis uses conservative assumptions and, whenever possible, the customer’s actual operating information. If the customer’s volume does not support the purchase, that should be part of the conversation. If the equipment would sit unused for much of the month, the owner should understand that before making a commitment.

If you sell income-producing equipment but cannot help a business owner understand how that equipment may reasonably produce income, it may be worth rethinking the sales approach.

Selling productive equipment is not merely explaining what the machine does. It is helping the business owner understand what the machine may do for the business.

Help the owner evaluate the payment in context

The shop owner should not ignore the $1,700 monthly payment. It is a real obligation and should be evaluated carefully.

The better question is:

If I invest approximately $1,700 per month in this equipment, what could it reasonably contribute to my business after the payment and additional operating costs?

That question creates context.

In the hypothetical example, approximately $11,400 of combined illustrative economic contribution before additional operating costs would be compared with the approximate $1,700 payment. That comparison may help the owner decide whether the equipment deserves deeper consideration.

It is not a guarantee of cash flow. It is not a substitute for reviewing actual margins, staffing, utilization and operating expenses. It is a starting point for disciplined analysis.

The owner should also consider:

• Whether existing technicians can handle the additional work
• Whether the shop has enough bay capacity
• Whether customer demand is consistent throughout the year
• Whether the equipment requires installation, training or maintenance
• Whether the business has enough working capital for added parts and labor
• What happens during slower periods
• Whether the equipment will remain useful as the business changes

If realistic economics support the investment, the payment should be viewed in the context of the productive asset. If realistic economics do not support the investment, financing does not turn a poor equipment purchase into a good one.

Not every equipment purchase makes sense.

The customer benefit matters too

Additional revenue should never be based on finding unnecessary work.

In the alignment example, a proper inspection may identify a legitimate alignment, steering or suspension condition. Correcting that condition may help the customer protect a new set of tires, maintain the vehicle and address a condition that could affect safety. Why invest in a new set of tires without knowing whether the vehicle's alignment could begin wearing them improperly?

The shop can benefit economically while the customer receives a legitimate service. Those outcomes can coexist when the work is properly identified, clearly explained and genuinely needed.

That principle applies beyond automotive service. Manufacturing machinery, medical equipment, printing equipment, food-production equipment and material-handling equipment can all be evaluated using the same fundamental question:

What can this equipment reasonably produce for the business compared with what it costs to own and operate?

The details will vary by industry, but the discipline is the same.

Financing should support a sound equipment decision

Once the business economics are understood, financing can become part of the decision rather than the entire decision.

Simplified Capital is not interested merely in creating another monthly payment. The purpose of financing productive business equipment is to help a business acquire an asset that makes economic sense without necessarily consuming the cash required to purchase it outright.

As an experienced commercial-finance resource and Structuring Specialist, Simplified Capital can evaluate equipment financing opportunities involving different equipment types, credit profiles, time-in-business situations and transaction circumstances through available financing resources and structures, subject to qualification.

Simplified Capital is also manufacturer-neutral. The customer’s equipment decision belongs to the customer and the equipment vendor. Our role is to evaluate the legitimate equipment transaction and determine whether an appropriate financing instrument and structure may be available.

For equipment vendors, manufacturers, distributors and dealers, that creates a more useful customer conversation. Instead of presenting only the price and payment, you can help the business owner think through utilization, contribution, operating costs and economic purpose.

That approach may lead to a better-informed sale, whether the answer is to move forward, adjust the equipment choice or wait until the business is ready.

Simplified Capital has been serving business owners since 2002.
A+ Rated with the BBB | Zero Customer Complaints Since 2003

If you are evaluating productive business equipment or helping a customer understand the financing side of an equipment purchase, contact Simplified Capital to discuss the situation:

(866) 810-1305
info@simplifiedcapital.com
www.simplifiedcapital.com

Learn more about available commercial financing solutions. Financing is subject to qualification and the specific circumstances of the transaction.