As your business expands, you may need more “hardware” to outfit a growing staff or perform new or additional tasks for customers. The new items may be small, such as tablets, smartphones, and laptops (which cost a few hundred to a few thousand dollars), or large equipment, such as cement trucks (which cost from $100,000 to $300,000) or CT scanners (which cost from $80,000 to $300,000). The cost for robots used by small manufacturers can start at $25,000 and go to $400,000. (Getting a new vehicle for business is a whole other discussion and it’s not covered here.) There’s a lot to think about as you get the equipment and machinery you need for a growing business.
Determine what’s needed
Take the time to plan your equipment purchases. Some basic decisions:
- What do you need?
- Do you need high-end items or will lower-cost items do?
- If you need multiples of the same items, can you get a discounted price?
- When do you need items?
- Can you budget going forward for future purchases?
- Do you need items immediately?
- Is it better to buy or lease? Factors:
- How long will you need the equipment?
- Will the equipment become obsolete shortly?
- Can you afford the higher cost of buying versus leasing?
- Can existing equipment be repaired or refurbished for additional life?
- What’s the cost of repair or refurbishing and how long can the item be then expected to last?
- Are you committed to the circular economy?
- What are the energy costs to running refurbished versus new equipment?
Factor in energy considerations
The good news is that new equipment probably is more energy efficient than old equipment; it costs less to run new equipment. As you add additional items, you want to factor in energy considerations.
If you’re looking to buy office equipment, such as computers, displays, and imaging equipment, look for Energy Star certified products. There are many other products rated by Energy Star, including water coolers, and lab grade refrigerators and freezers.
Look at tax breaks
If you buy equipment, you can write off the cost…but whether it’s in the year of purchase or over time depends on the tax rules you rely on. The rules are complicated, but here’s a brief overview:
- First-year expensing—an immediate deduction for the cost of equipment up to a dollar limit ($1,220,000 in 2024) for a business that’s profitable.
- Bonus depreciation—a percentage of the cost (60% in 2024 unless Congress returns it to 100%).
- Regular depreciation—an annual allowance (percentage) of the cost over a fixed number of years, depending on the type of equipment.
- De minimis rule—an immediate deduction for small businesses of the cost up to $2,500 per item or invoice as if you purchased supplies (but the equipment does not go on the balance sheet).
You can learn more about these write-off options in IRS Publication 946.
Decide on financing if necessary
Depending on the cost of the equipment and your current access to capital, you may need to finance new purchases. In today’s high-interest environment, you want to be careful that the business can handle the cost of borrowing.
Review your financing options, which include:
- Credit card borrowing—easy to do but not advisable as a long-term solution because of high interest rates.
- Line of credit—obtain one if you don’t already have one or expand the one you have to cover the cost of new purchases.
- Vender financing—the seller may offer attractive terms to nail down the sale.
- Equipment financing—funding from lenders specializing in this type of loan. Usually, you need to go through a loan process, such as submitting an application, providing financial information (e.g., demonstrating cash flow), and getting credit approval (a review of personal and business credit history).
Final thought
Going forward, there’s going to be continued emphasis on software, such as those providing AI solutions. But the need for “hardware” isn’t going away. As your business grows, you’ll likely need new types of items or more of what you already have. Think about the return on investment—what new items will cost and what they’ll help your business generate in revenue. Be sure you make good decisions that suit your current needs and can carry you into the future. Don’t hesitate to have a CPA or other professional help you run the numbers.
