The Equipment That Will Make You the Most Money
While the right equipment can help your company weather economic downturns, a bad purchase can hurt your ability to compete. That’s why it’s crucial to analyze the pros and cons of every purchase, including the potential return on investment. In some cases, buying new equipment may not be the best option; it may be wiser to lease or rent or to avoid acquiring machinery entirely.
Still, don’t fall into the trap of avoiding equipment purchases simply because the economy is volatile. The right equipment can improve your processes, productivity, capacity to innovate and bottom line. But to get those results from a major capital investment, you need an investment plan that addresses both your short- and long-term needs. Not only will you save time and resources, but you’ll also avoid costly quick fixes.
Assess your business reality
It is important to understand your objectives. Are you looking to increase productivity? Will this new equipment make you more successful in the marketplace? Will it help you stay ahead of your competitors? Can you upgrade instead of buying new equipment and still get better performance?
Be sure you have answers to these questions before you buy. Avoid being influenced by aggressive marketing campaigns that make unrealistic claims.
Get an external point of view
Depending on the scale of your investment, it may be worth working with an external consultant who can ensure you make the most of your purchase by helping you assess your needs. Initially, you’ll be looking at important factors such as capacity, employee usage, and current resources. The most common practice is to do a cost-benefit analysis, which helps you justify your purchase and determine the pros and cons.
If you’re in manufacturing, you may use an asset utilization ratio, which measures your ability to get optimal results from equipment and other assets. The premise is that more efficient equipment will give you better results.
In today’s competitive business world, being innovative in everything you do is key to success. Innovation is really about responding to change in a creative way; one way to do this is by acquiring equipment or technology that helps you improve your efficiency.
Your new equipment might help you streamline your operations and create better products and services that appeal to a niche market, for instance, or it might help your research and development efforts or by improving customer service. It’s always a good idea to let your customers know that you’re investing in innovation; it’s a clear message that you have their evolving needs in mind.
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Look at your business as a whole
Rather than making isolated purchases, look at the overall needs of your operations. Short-term purchases without long-term plans are costly and may not yield the best results. An external consultant can conduct a review of operational processes to help you fully understand the way your business works. This review enables the consultant to devise a sound plan that ensures your operations run smoothly and don’t generate waste.
Creating such a plan helps you focus on improving one area of your business at a time, rather than tackling an entire process. Ultimately, you could improve turnaround time, efficiency or other aspects of your business. If you discover you don’t need to buy new equipment at all, you might then be able to use the money you’ve saved—or avoided spending—to make other investments in your firm.
A consultant can also help you anticipate human resources issues arising from new equipment. For instance, if new machines make some jobs redundant, will you be able to move affected employees to other positions in your company? Will you face increased costs for severance pay or retraining? Do collective agreements affect your ability to reassign workers?
Another question worth asking is whether the equipment you are replacing could be used somewhere else within the company. Often, for example, less powerful computers can be reused in departments that do not require high-performance machines. Likewise, in the area of electronic data processing, the newest technology is not necessarily the best. To avoid useless setbacks, businesses often purchase the second or third version of a new software package, after the first buyers have discovered the bugs. Ask yourself carefully whether the new features offered by more technologically advanced equipment are really of use to you.
Shop around for suppliers
The Internet gives you access to a wide range of specialized equipment companies, so take the time to browse. Check out newsletters targeting specific industries and attend trade shows where you can get some hands-on time with equipment. You can also contact industry associations for more information. Don’t let price alone guide you in your supplier decision. Also, consider aspects such as post-sales service and a supplier’s reputation and get references. If you’re a loyal customer, you can ask for better warranties or an extended customer service plan.
Keep training in mind
All too often, entrepreneurs don’t consider the time, money and resources required to train employees on new equipment. You want to avoid the productivity drop that occurs when employees take too much time to adapt to new technology or processes. If the equipment is new or has new features, you can assume employees will face a learning curve. It’s important to head off problems by ensuring that you have the financing in place to address the resulting downtime. You’ll need to block off time to train employees and still be sure that your operations can run at capacity.
Know your financing options
Every method of financing has advantages and disadvantages, so carefully evaluate each option. The factors to be considered vary from one company to the other, depending on your company’s credit record or line of business.
- Purchasing enables you to own the equipment as soon as the transaction is completed. Your company amortizes the cost over the lifespan of the equipment. It may be possible to get financing for more than the purchase price. BDC, for example, offers up to 100% financing for the cost of the purchase and the possibility of additional financing to cover the cost of installation, training, and transportation.
- Leasing the equipment for a specific period can make your payments lower than they would be if you purchased the equipment. However, you do not own the equipment, and you will have to wait until the contract ends to buy it if you wish to do so. The price you pay at the end of the contract may be lower than the initial purchase price would have been, but since you’ve also been making lease payments, this option may cost more in the long run than others. Depending on the structure of the lease, your payments may be included as part of your operating costs.
- Renting option may be appropriate for equipment that quickly becomes obsolete or is needed for a specific project. Rented equipment is not considered a fixed asset, so you can quickly exchange or return it at minimal cost.
Keep it green
When purchasing equipment or technology, be sure that it’s energy efficient. Not only will you be saving money, but you’ll also be contributing to the health of the planet. Research the environmental impact of your new equipment and find out how to dispose of your existing equipment in a way that minimizes its impact on the environment.
Investing in the right equipment is a complex task. An external consultant can help you see the big picture and plan your purchases so that your new equipment supports your company’s ability to thrive in challenging times.
FREIGHT RATE BASICS
Freight rates are variable, meaning that they are constantly changing depending on the economy, fuel prices, supply and demand, and the season. The costs of running a trucking company are fairly stable in comparison with cargo rates. Knowing your own trucking companies cost per mile is vital to making a profit on the road. Just for reference, according to the research done by ATRI, the average cost per mile in 2015 was $1.59 for all motor carriers. One easy way to make sure that you have a found a good rate on a freight shipment is to multiply the total mileage of the load route by your trucking companies cost per mile to figure out what it will cost you to haul the load.
Example: $1.59 X 1,310 = $2,082.90
In the example listed above, we took ATRI’s average cost per mile ($1.59) and the mileage for a round-trip load that is going from Glen Allen, VA to Albany, GA (1,310 miles). This load would cost you $2,082.90 to haul. As long as the freight rate you’re getting will pay more than what you will spend to get the cargo there, you will make money on that truck shipment.
One of the most important things to remember is that higher paying freight is relative. What you consider to be high, might not be for the person next to you on the road. Try not to let all the information that is out there about the highest paying truck freight loads let you lose sight of accounting basics, revenue and making a profit!
FREIGHT TYPES AND THEIR AFFECTED RATES
Like everything else, there’s give and take when it comes to finding higher paying freight. While there are no good and bad types of freight, there are some that just won’t work for every trucking company. If it pays higher, there’s a chance that it might require more training, experience, and it may cost you more in insurance coverage to haul. So looking at all the opportunities and challenges of specific freight is important to figure out what works best for your trucking company and your drivers.
Specializing in certain types of freight; like hauling motor vehicles, livestock, or hazardous materials will gain you a higher freight rate per mile but those types of freight require special licenses, higher insurance premiums, and a lot of special equipment and training. It’s important to keep in mind that while on paper it might look like you are getting paid more, there is a lot more money that needs to be spent up front before you can haul those items.
Flatbed trailers are often awarded higher paying freight loads. This shipping type might be a good fit for a trucking company with experienced truck drivers that love a challenge and are willing to do a little extra work to get paid more, like help with loading/unloading, and tarping certain loads.
Dedicated lanes and Less-Than-Truckload (LTL) jobs are often highly sought after because of the perceived higher paying freight rates and reliability of consistent freight. While those two things are true, the market for dedicated lanes and LTL loads is so competitive that they can be hard to find and hard to keep.
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LOAD BOARDS CAN GET YOUR FOOT IN THE DOOR
Load boards are websites you can use to find and book all types of loads. A free load board, NextLOAD.com gives all trucking companies, the ability to search for and filter loads by trailer types, truckload types, destinations, and rates listed. Most importantly we show which brokers and shippers have an established credit line with Apex so you know that you are booking quality loads that can help you create relationships to earn those higher paying truck freight rates.
Do you want to book the highest paying truckloads and stop focusing only on the loads that pay quick? Factoring your freight bills can help you with your cash flow so that you can book more loads and get paid the same day.
Get all 10 tips by downloading the “10 Tips Everyone in Transportation Needs to Know Now” booklet by clicking the image below.
About Commercial Fleet Financing, Inc.:
At Commercial Fleet Financing (CFF), our pros have given smart advice to fleet owners and owner-operators in the transportation, moving, towing or construction industries for more than two decades. With CFF, finding the right financing solutions is a phone call away and most borrowers secure commercial vehicle financing with ease. To talk directly with one of our finance pros and get started with a credit approval in as little as two hours, CFF’s phone number is (469) 281-2962.