Whether it’s a new piece of equipment, vehicle, or renovation, there are times when you need to make a major purchasing decision for your small business. Buying large-ticket items is no easy task, and it takes a big toll on your small business budget. It takes a careful evaluation of your business records and a lot of planning.

When you buy a large item, you make an investment for your company. These items tend to cost a lot of money and last more than one year.

After being a business owner for over 30 years, I’ve had to make a lot of purchasing decisions. Some were good, some were bad, but most required a thought-out plan of action. The following are steps I’ve learned to take when making major purchases for your company.

Define your needs

Planning for a major purchase starts with determining your need for the item. Sometimes, you have no choice but to buy an item immediately. For example, you own a lawn care business and your mower breaks beyond repair. Since you can’t run your business without the mower, you need to buy one as soon as possible.

On the other hand, you can often plan for major purchases in advance. Understand how your major purchase is going to contribute to your business before you begin shopping around.

My second startup, founded in 1988, was a recruiting network. In the early weeks, my partner and I were flat broke. Since we were running a network of recruiters, we had to find a cheap way to print a lot of resumes and job orders.

We knew what we needed, but we didn’t take the time to research the details of what we were going to buy. Instead, we dove right in and bought a new, brand-name, offset printing press. The press had more features than we needed and was complicated to use. In the end, we spent way too much time and money on our first printing press.

Plan ahead

Planning your purchase ahead of time is key to getting the most for your money. You have little room for error in your budget for small business. Overspending on your big purchase could be devastating to your company. It could even cause you to go under.

To avoid overspending, look over your business’s financial history. Patterns in your expenses and income should give you an idea of the best time to make large purchases. Review the previous year’s financial statements to determine how to create a business budget that accommodates your purchase.

Cash flow budgeting

To make a smart purchasing decision, you have to understand how the new item will fit into your cash flow. Cash flow is the money coming into and flowing out of your company over a certain period.

When projecting cash flow, compare the cost of the item to the extra revenue the item will bring in. Estimate additional cash that will come in and out of your business each month after buying the new item.

Costs of a major purchase

Investing in a large item for your business costs you a large amount of money. Before buying, be sure you know your limits for how much you are willing to put into the item.

Once you know your small business budget, you should decide how you will pay for the item. Depending on the purchase, you might have the option to buy or lease. Weigh the pros and cons of each option to determine which is right for you.

If you have the funds, you might opt to pay for a large item with cash. But, that is often not possible for small business owners. You can also finance the purchase. Look at your lending options carefully before signing an agreement. Pay attention to the length of the loan, interest rates, and terms and conditions.

You can also borrow from friends and family to avoid high interest rates and strict payment terms. For example, to finance our printing press, we borrowed $10,000 from my partner’s mom.

There are hidden costs in large-ticket items

Remember, the dollar amount on the item’s price tag is not the only cost involved. Look out for these expenses when you make a major purchase for your business:

• Installation fees
• Taxes
• Routine maintenance
• Delivery and shipping charges
• Training classes

The hidden costs of a new item might not just be money. You will likely invest a lot of time into researching, buying, and implementing the item.

After buying our first printing press, my partner, our wives, one employee, and I went to the printing firm’s headquarters and took classes on how to operate our shiny new printing press. We learned about the chemicals, disposal of the chemicals, the cleaning solution, the master film-like templates that transposed the ink to the rolls, the rollers, the ink, the cleaning rags—  everything.

All that training took time out of our regular business days. Which, as a young startup, meant we had to work more hours to make up the lost time. When you buy a large item, take all the investments you will make into account.

Choose your vendor wisely

Before making a large purchasing decision, shop around. Talk to different suppliers and compare the prices they offer. Narrow your search down to a few vendors that fit within your budget to make a final decision. Make sure you work with a vendor that you can contact if anything goes wrong with the item you buy.

After buying the printing press, we had it delivered and used it for a month or two. The press kept breaking, jamming, and being very finicky. We had no other options for printing, so we had to make it work. But, no matter what we tried, we couldn’t.

In fact, the printing press dealer’s employees couldn’t make it work either. Our only option was to return the press. Unfortunately, the money we paid for it couldn’t be completely refunded.

Making a major purchase for your small business

No matter how you go about making a major purchase, the bottom line is this: you need to find an item that’s going to work best for your business. It may take some trial and error, but careful planning can help you avoid the mistakes my partner and I made while buying our first large item.

It took us several years to repay the rest of the money to my partner’s mom. We became much more careful about doing our research from that point forward. As you buy large items for your business, take a close look at your budget, cash flow, and financing options.

Written by Mike Kappel

https://www.forbes.com/sites/mikekappel/2016/11/02/big-purchases-for-a-small-business-budget/#1bed66ff492e