You must bridge the gap between purchase and profit. When is the right time to buy that new piece of equipment – or is leasing just the right ticket?
In the fictional Wonka Factory, a book-turned-movie classic, it is highly unlikely that Willy Wonka ever leased his high-powered equipment. In fact, a great portion of the story is predicated on the functionality and variety of equipment that Wonka owned and put into high-gear in every mind-blowing department. The machines churned out colorful confections, including the famous Wonka Bar, and they were a main focus of the film as they were the heart and soul of the entire delicious operation.
In real life, Nestle created a new division “The Willy Wonka Candy Company,” but unlike the movie where every bar the factory produced seemed to sell out instantly, real-life Wonka Bars collected dust on retail shelves. Nestle even tried to appeal to the excitement of movie fans by initiating a Golden Ticket contest, but the attempt to revitalize the brand failed and Wonka Bars were discontinued in 2010 due to poor sales. A big company like Nestle absorbed the blow and moved on, but how would your franchise fare if you were to buy equipment before there is reasonable evidence that what it will produce for you will be enough to get you a decent return on your investment?
Timing matters a lot when it comes to the decision to purchase equipment and the impulse to buy should be tempered with the reality of real sales.
One of the most stress-relieving things that franchise opportunities provide is expert advice that is biased towards your success when you need to make big decisions. When it comes to the right time to make choices as a business owner (including when and how to purchase equipment), it is good to know the choice is yours. Whether it is your first franchise or you are expanding to an additional location, the wrong decision will hurt you, so lean on your franchisor to gain an in-depth understanding of the types of equipment financing programs they have worked tirelessly to provide to you through partnership with vendors. “When it comes to buying equipment, don’t fall in love with technology. Fall in love with profit,” adds Michael Jutt, Minuteman Press International Executive Vice President and Director of Training.
Franchise owners are wise to look to the guidance provided by their franchisor, including those governing the nature of sales so major purchase decisions can be made wisely. Mike continues, “Making a purchase too soon in the development cycle can be the kiss of death for your business. Too often, people lose sight of what is proven, in favor of the newly invented and jump on the new and exciting over the proven path. The latest and greatest is not always the best. With Minuteman Press International, we have an advantage in our management software as it gives us a report that reveals how much of a particular product we are selling. What it is costing us and what are our margins. We can see how much we are sending to specific central facilities over a defined period of time. If a sizable amount of a specific product is being purchase outside, we simply run the numbers and determine if the product should be produced on site. Through prudent analysis, we can identify the right time to buy the necessary equipment/technology.”
If you pay for your equipment outright, it can be expensive enough to disrupt your cash flow, even though it may seem like the most cost-effective way to invest in the growth of your business. You must consider things like depreciation, maintenance and repairs before signing that check. Also, the need to upgrade over time could be another drain on your capital. For many franchise owners, resisting the urge to purchase equipment (especially as they are just starting out) frees-up precious funds that could be used for marketing and developing the growth of their customer bases. At the same time, in the U.S., businesses are able to deduct costs of equipment purchases if their type of equipment qualifies (and deduction amounts vary from year to year). Also, the U.S. and Canada allows you to deduct the cost of depreciation which can take the sting out of some of the expense as your equipment ages and loses value. Consulting your tax attorney on these points would be wise.
When it comes to upgrading equipment technology, be prudent
Rich Hornberger, Regional Vice President for Minuteman Press International in Philadelphia, knows that the decision to lease or buy equipment can be deceiving and must be influenced by factors that will help you grow your business in just the right way. He advises the following, “When considering adding more equipment to your business, many times franchisees will get a call for something from one of their customers and instead of looking to one of our many choice vendors, they look to buy equipment right away. It is far more wise to get the work first through the many resources we offer our franchisees. These resources provide the chance to produce the kind of work that is lucrative. Then, we, as local support representatives, will go in and groom the franchisee so they can get more of that kind of that business. When the time comes that you reach a certain volume of business that it warrants purchasing the equipment, that’s when you make your move to expand your capabilities and, in turn, increase your gross profits.”
As Rich says, “The proverbial cart before the horse comes to mind when it comes to the buy or lease question. When there is enough volume of a specific type of work, we generally advise leasing equipment through our equipment vendors. This way the franchise can avoid laying out capital to purchase equipment outright.”
Franchise Advice on Buying or Leasing Equipment:
- Buying can be the right choice if the sales are in the sweet spot. If your preference is to make a piece of equipment all yours to modify, customize or upgrade to suit your particular preferences, you are free to do so in a way you simply cannot if you are leasing.
- Leasing is tax-deductible and may only require a low initial investment. Very often, you can lease equipment without the kind of down payment that purchasing requires and you still get the equipment you need without interrupting your cash flow, a real boost, especially to new franchisees. However, you should consider the high cost of interest generally associated with leasing.
Keith Cawley, Minuteman Press Regional Vice President located for the Minnesota and Missouri Regions, offers this expert advice: “The decision to buy equipment shouldn’t be taken lightly. I have seen businesses buying equipment for JUST one customer which is a huge risk. I tell Minuteman Press franchise owners in my region not to make a decision until we have talked and I have seen the proposal for the new equipment (two sets of eyes are better than one). I then help them analyze data from our proprietary software to see how many jobs we have done that were outsourced and what has been quoted that we didn’t get done. This data serves as an indicator of necessity within the store. Can we add more profit on jobs we’ve done? Would we have landed additional jobs we didn’t get from other quotes?”
Minuteman Press franchise owner complaints are few and far between when it comes to local and corporate support, particularly when it comes to sorting out the best decision when it comes to buying or leasing equipment. Keith continues, “I also recommend our owners call the home office to discuss different equipment and the preferred vendor for said equipment. Also, I advise that they don’t deal with salesmen alone because many salesmen don’t always have your best interest at heart. I advise them to always call their Regional Vice-President or Area Manager to assist when it comes to the choice between buying and leasing. In this way, we can help make sure the right choice is made at the right time. I have saved a lot of people from making bad decisions because they knew to reach out and ask for my help.”
Mike Jutt gives us practical advice when the moment comes to upgrade equipment technology, saying, “Once you have decided that acquiring equipment is the right thing to do, your next decision is whether to buy outright, lease, or finance (as a loan through your bank).
There are many points to consider, so I will just name a few:
- tax advantages
- cash flow
- life expectancy of the equipment
- personal preference
He adds, “Being too cautious is not good either. One should not fear expanding his or her business capabilities. It’s great to have onsite manufacturing of a wide variety of products. This really helps to be able to turn orders around faster when you are in total control of manufacturing.”
Mike concludes with reason for great excitement about the technological advances available to current and future Minuteman Press franchise owners. After all, they represent the most comprehensively trained and supported digital print design and marketing franchise owners in the world. He says, “In our industry we have many choices for expansion. Today, in the modern printing world in which we operate, the equipment has gotten smaller and, in many cases, very cost effective. It’s a fact that if you do have the equipment to produce a specific product you will be more likely to sell more of that product. Simply do the math and don’t bet the farm.”
About Minuteman Press International
Minuteman Press International is a number one rated business marketing and printing franchise that offers world class training and unparalleled ongoing local support. Started in 1973 by Roy Titus and his son Bob, Minuteman Press began franchising in 1975 and has grown to over 950 business service franchise locations worldwide including the U.S., Australia, Canada, South Africa, and the United Kingdom. Minuteman Press is ranked #1 in category by Entrepreneur for 14 years in a row and 25 times overall, including 2017. We are the modern version of the printing industry, providing high quality products and services for businesses that go way beyond just ink on paper. Today our stores produce promotional products, custom apparel, direct mail advertising, large format printing (banners and posters), signs, and much more. Prior experience is not necessary to own and operate a successful Minuteman Press franchise.
Learn more about Minuteman Press design, printing, and marketing franchise opportunities by calling 1-800-645-3006 and access Minuteman Press franchise reviews at www.minutemanpressfranchise.com