Whether part of a sound maintenance plan or a larg- er strategy capitalizing on changing consumer food and packaging preferences, the reality is new equipment acquisitions and production line retooling from time-to-time are essential. From minor upgrades to complex line reconfigurations, here are some tips to help you make
your equipment financing a smart investment in a solid future.
Do your homework
Whenever considering a brand new investment or retooling,
take a realistic view of the revenue you expect to generate from
new customers, new markets, efficiency gains, etc.
While the gluten-free foods industry is rapidly changing and
expected to be worth more than $6.6 billion by 2017, the capital
spend to isolate your production line and capitalize on the market
can be substantial.
Pick the right long-term financial partner
Choose an institution that’s familiar with your industry and
offers a diverse array of approaches to helping you lower the cost
of acquiring new equipment. Reaching out to your equipment
vendor and also conducting a search for a financial partner in your
industry on the Equipment Leasing & Finance Association website are a great start.
Ultimately, your financial advisor should be able to understand
your cash-flow needs, tax benefits and take an active role in helping you reduce your debt. Picking the right financial partner over
the long term is as critical as researching and determining what
equipment to buy.
Look for an institution that has affiliation with a deep set of
equipment evaluation appraisers capable of assessing the true
value of the equipment (asset) anytime over its lifecycle. Such
providers may also be able to help you broaden your business
network, which can help down the road when looking to sell
U.S.-based manufacturers are increasingly capitalizing on a
strong secondary market for aged equipment in South America.
By selling your equipment to the right buyer, you can recoup
part of your investment and reinvest in new, more efficient production lines.
Long-term or short-term
Your decision for short or
long-term financing will likely
depend on the equipment lifecycle and the value of your equipment over its lifecycle.
Financial flexibility is critical. Lines of credit may be ideal initially with any new venture, as it can be difficult to predict market
demand and related inventory needs. It is better to remain financially agile in the event demand exceeds expectations.
Consider, too, that the last thing you want to do is lock into an
expensive production process without the flexibility to keep pace
with rapid changes in technology. Evaluate how many years of true
ownership may put your business ahead in profit versus the need
to maintain your competitive position from a pricing standpoint
and how changes in technology may bring production costs down.
Lease or Buy?
There are a variety of factors to consider when determining
whether to lease or buy. A strong financial partner will help you
accurately analyze the most cost-effective acquisition strategy
through a modeled analysis. However, generally, if you can’t use all
the depreciation benefits of equipment ownership to minimize your
tax position, or you prefer to upgrade your equipment on a regular
basis, you should consider leasing to accomplish these goals.
The food and agribusiness landscape is changing fast. A variety
of factors can impact the outcome of your venture, the least of
which should be the condition of your equipment or the state of
your investment in it. Choosing a financial partner with a thorough
understanding of your markets can provide the experience and
connections you need to make a sound investment. ◆
Peter Arendt, email@example.com, 614-480-3100, is
managing director of Food and Agribusiness at Huntington Bank,
which specializes in serving businesses engaged in production,
processing, and the distribution of food, commodity and agricultural products. Sectors include grain and oilseeds, animal protein,
food processing, dairy processing, agriculture inputs and allied
Tips for Financing
Equipment Upgrades a
Peter Arendt, Managing Director of Food and Agribusiness, Huntington Bank