This is going to sound familiar to a lot of businesspeople.
You’ve got some equipment you suspect is running on borrowed time. It gives you a little trouble once in a while. Or maybe it doesn’t, but it has kept chugging along well past its expected expiration date. At some point – possibly at the worst possible time – it’s going to give out.
What do you do? Recent research says 8 of 10 of your fellow businesspeople wait until the equipment fails before thinking about a replacement.
There are some obvious problems here. First, there’s downtime until you get a replacement. Add in some training time if the equipment has new features, and it probably does. Then there’s what you could call an emergency cost. Because you need a replacement fast, you won’t have much time for deal hunting. And instead of getting the model you really want, you may have to settle for the model your supplier has available at the time.
So much for the obvious pitfalls. What’s maybe not as obvious is the way older equipment makes you less competitive. Sure, it works, but it may not work to the capacity or with the efficiency it used to. Plus, remember those new features you have to spend time training on? Your competitors may already be using those to get ahead of you.
Despite all that, 80% of companies wait until equipment breaks to think about a replacement. Why? Cash flow is a big reason. But the very act of trying to preserve cash flow by putting off equipment replacements is a major cause of cash flow problems. Which then makes it even harder to replace equipment on a schedule. Which then causes more cash flow problems.
It’s definitely a cycle you don’t want to get into. And it’s one you want to break out of if you have gotten caught in it. Fortunately, there’s AFMD.
What Is AFMD and How Does It Help?
AFMD stands for Acquire, Finance, Manage, Dispose, and it’s a great way to start thinking more strategically about your equipment lifecycle.
First, let’s talk about Acquire. In this stage, you’ll figure out what equipment you need. Well that’s just the newer/faster/flashier version of what you already have, right? Maybe, but equipment doesn’t exist in a bubble. It’s part of an ecosystem that includes all your equipment, the people who use it, the training those people need, your cash flow situation, your 1-year plan, your 5-year plan, the opportunities you can see in front of you, the opportunities those opportunities could lead to, and on and on. It’s all different for every business, but the point is that it’s not enough to think about immediate needs, which is how a business gets trapped in the break/replace cycle in the first place. It’s necessary to step back and look at the bigger picture. To do it right, you may spend considerable time on this stage. But time – to think and act strategically, instead of just reacting to short-term pressures – is what AFMD planning is really all about.
Next, there’s the Finance stage. Often, the work you do in the Acquire stage reveals needs that are different – and possibly bigger – than you initially thought. But even if they’re not, how will you pay for your equipment? Cash, credit lines, equipment financing? Cash can be a good choice, but there’s an opportunity cost to using it: if you tie it up in equipment, you can’t use it for other growth opportunities. Credit lines? Those are best used for short-term purposes, not longer-term assets like equipment. Equipment financing, on the other hand, gives you a lot more flexibility than either cash or credit lines. Financing increases your buying power, and it can be customized to match the productivity curve of your equipment, make add-ons easier and more affordable, simplify the upgrade path for everchanging technology, and so on – all of which helps you plan and act more strategically, which is the ultimate goal of AFMD.
On to the Manage stage, which is really less of a discrete stage and more of an ongoing process of monitoring the state of your equipment in relation to the state of your business. Are productivity goals being met? Are you able to respond in an agile way to market opportunities? Are there any equipment-related bottlenecks in your business? The specific questions you need to ask may be different, but whatever they are, it’s important to ask them periodically in order to learn whether it’s time for the next stage: Dispose.
In the Dispose stage, the equipment lifecycle comes full circle. The goal here is to retire equipment gracefully, in a controlled, planned way that helps you manage cash flow, avoid downtime, and make strategically smart equipment choices as you move back to the Acquire stage. Sure, equipment will still break unexpectedly, requiring you to adjust your plan. But simply having a plan will put you in a better position to handle unplanned events.
If you’re looking for a way to break out of the costly break/replace cycle, give AFMD a try. At LEAF, we’re here to help with customized financing that fits right into your equipment lifecycle planning.