It is this time of year when business owners look at their numbers and realize they may have made more money than they thought. One of the first things a business owner may go to reduce their tax bill is an equipment purchase.
Equipment purchases can be a great write-off, but before going down that road there are several things that business owners should consider.
A good year end purchase has the following characteristics:
- It generates money.
- It saves time.
- It has good resale value (is there a local demand for the equipment?)
Cash flow should also be considered when making an equipment decision. Will the purchase leave the business enough cash for its operational needs? If financed, do the payments cause an undue burden? At what point will the equipment begin generating the desired cash flow? Will the decrease in cash prevent the company from pursuing other opportunities?
It may sound counter-intuitive, but paying the tax may result in having more cash in the bank. So make sure you do your homework:
- Quantify the characteristics and make sure that the purchase is right for the business and right for this period in time.
- Do your cash flow projections and make sure the purchase does not cause undue burden on operational needs.
Don’t spend a dollar to save cents.