Equipment Financing | How Do You Measure Your ROI (Return on Investment)?
With any type of equipment financing, your return on investment (ROI) is an effective measurement for determining how well your equipment financing terms are aligning with your business goals. To be competitive in today’s markets, businesses need reliable and functional equipment. Often customers or potential customers consider a vendor’s approach to their use of state-of-the-art equipment and use of technology when selecting the company that can provide the levels of service they seek. This adds a new element to the long-recognized methods of evaluating the ROI of capital expenditures. Factors that contribute to evaluating ROI include:
Effective use of capital – evaluate the long-term commitment of capital when purchasing vs. monthly expenditures for equipment financing, leasing or even renting equipment as needed.
Total Cost of Ownership (TCO) – evaluation of your total cash outlay for equipment or property over time can provide valuable insight to your ROI. This includes weighing the advantages and disadvantages of purchasing equipment vs. equipment financing, leasing or renting.
Preservation of capital – if your business relies on readily available capital you will want to control expenditures as much as possible. This again is a factor in your decisions to purchase, obtain equipment financing, or lease high-dollar items such as heavy equipment or vehicles such as semi tractors/trailers.
Tax implications – personal property is typically taxable as an asset adding to the long-term cost of expensive equipment. This tax burden must also be weighed against the depreciation advantage offered by ownership that may reduce the net tax liability for such items over a period of years.
Life cycle – significant investments in items such as trucks and construction equipment must take into account the expected life cycle of the investment. More modern equipment offers some advantages such as improved features, higher reliability that equates to lower maintenance costs and improved performance that may reduce fuel costs.
Customer service – with more modern and reliable equipment such as GPS units that improve route efficiency and safety features that benefit drivers for better employee relations and reduced liability from injury, customers can reap the benefits in the form of better service that brings them back for future services.
Availability – if outdated equipment results in high maintenance or downtime that renders it unavailable this amounts to wasted capital, whether you own or lease the equipment. Investing in new or updated equipment can have an ROI in itself when downtime is a factor.
Are You Maximizing Your ROI?
Capital expenditures should always be measured against the associated ROI, except of course in such instances when they are required by regulation or government mandates.
Consulting with financial experts that are well-versed in justifying and quantifying ROI can be time well spent before moving forward with significant cash outlays.
As a leading resource for equipment financing, Equipment Finance Services can assist businesses with determining their optimal purchase/lease options to maximize your ROI. Contact us today at 801-386-8222 to get started with innovative financing structured to meet your specific needs.