Cash Flow Optimization To Purchase Capital Equipment
You’re facing a common problem for businesses that need to invest in capital equipment to grow. You know your business will grow if you purchase additional equipment to meet demand, but you simply can’t afford it because you don’t have enough cash flow. Most businesses in this situation should explore these three options: 1) Optimize revenue opportunities, 2) Streamline costs and/or 3) Seek outside financing/capital.
Optimize revenue opportunities
New equipment may certainly add to your revenue over time. However, there may also be ways to increase revenue using your existing equipment. Specifically, evaluate your clients and list them in order of profitability to your business. Those at the bottom or the least profitable clients, should be replaced with better clients. This strategy will increase the revenue per client or profitability for the business and thus you’ll have more cash flow for future capital equipment purchases.
This would mean reducing non-essential expenses such as certain administrative and redundant costs. You’ll need to review all of the costs in your business to complete this process. Please note though that this cost-cutting strategy may not provide enough cash flow to purchase new equipment right away. Usually, cost cutting programs take time to provide substantial savings.
Seek outside financing/capital
If you’ve explored the two above options and still don’t have enough capital to invest in new equipment, you can always seek financing from a lender. There are many banks and financing companies that provide equipment loans to businesses. You’ll just need to make sure the terms of the loan are favorable when considering the return on investment for purchasing the new equipment. Another option is to seek an equity investor such as a strategic partner. There may very well be someone in your supply chain such as a supplier or client that will invest in your business to fund the purchase.
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