When handled correctly, capital expenditures can help your business operate more efficiently and boost revenue. However, choosing where, when, and how much to spend can come with many uncertainties. It may feel safer to avoid major outlays altogether, but being too frugal can inhibit improvements. Performing a careful cost-benefit analysis when budgeting capital expenditures can help your company spend more efficiently and become more profitable over time.
Quality equipment is important, but it often comes with a major price tag. When considering a new equipment purchase, some companies simply guess about the impact of this expense. This mistake can cause a company to misjudge the expense’s long-term value and fail to invest appropriately. Instead, take time to model the increased revenue that is possible with better equipment and greater productivity, then take a look at our flexible equipment financing options.
When considering a purchase, it can be difficult to evaluate the item’s impact from the price tag alone. To better understand what an expense will mean for your company, think about this number in terms of billable hours, staff wages, or units sold. Translating a price into a company-specific value can show how long it will take to earn back this amount. This also works when planning for multiple smaller expenses – such as new computers, software, or furniture. If you anticipate numerous expenses over time, a line of credit can be a convenient solution.
Measuring capital expenditures in terms of time or productivity can also help you gauge the benefits of better equipment, more employees, or a new facility. Look at your current operations and estimate how your capital expenditure would boost daily productivity – such as by streamlining processes, improving quality, or increasing output. Multiply this daily improvement over months or years to understand your long-term value.
Applying for a Loan
Modeling the impact of a major expense over time can help when applying for a term loan. By showing why an expenditure is necessary and how it will benefit your company’s growth, you can assure your lender that your strategy is sound and your loan request is practical.
Helping Your Company Grow
Financing some of your capital expenditures can be a good way to maintain your company’s cash reserves and promote steady growth. At Sun National Bank, we offer a wide array of flexible lending and credit solutions ideal for the needs of middle-market businesses.