In the Know: Purchasing new equipment

April 7, 2016 By    

In the Know is a monthly partnership between LP Gas magazine and Propane Resources. Our focus this month is on purchasing equipment, addressed by financial consultant Tamera Kovacs.

Q: With the arrival of spring, what steps should propane retailers take to assess their operational needs and determine when to buy needed equipment?

A: Equipment purchases, like any capital investment, should be tied to the goals of the company. What are your one-, five- and 10-year goals for the company?

Are you on an aggressive or conservative growth plan? Are you looking to make an acquisition in the future? Do you have a tax situation that would impact your capital investment decisions? What are your cash considerations? Are you planning to sell in the next two years?

Your equipment purchase plan should come with the understanding that immediate needs may disrupt or impact that plan. Making a capital purchase because a business has cash in the bank is making the decision in a vacuum. Understanding how the operational side of the business impacts the financial side is important and helpful in making an informed decision.

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There is no magic formula, but there are key indicators you should track. The table offers a few things you can use to assist in the decision-making process when considering capital investments.

Everyone will have their own threshold, and unfortunately all of the planning in the world cannot predict when a truck may go out of service in the peak of your delivery needs.

Develop an equipment purchase plan supported by a capital investment plan. This plan should include variables such as purchasing new versus used or refurbished. It should take into account your growth plan and tax situation.

Making capital investments in equipment should be an ongoing decision based on the growth and future plans of the company. Keep emotion out of the decision-making process and base your purchases on facts. You don’t want to regret that you did or didn’t make the purchase because you didn’t tie your capital purchase needs to your future business plans.

 

Tamera Kovacs is a financial consultant and expert in business valuations and sales with Propane Resources. She can be reached at 913-262-0196 or tamera@propaneresources.com.

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