You have decided not to borrow anymore. Now what?

Just because you are not borrowing money doesn’t mean you can’t replace your equipment. It just takes a different mindset and some preparation. Learn more in this week’s blog.

Many businesses use financing to make equipment purchases. But when you use financing, you give up time and control in your entrepreneurial business. Neither of those items are things that you want to give up. 

So what can you do to keep control of your time and business?  The key is preparation.  Here’s how to prepare to replace equipment.

Instead of making the payments to the bank or the credit card company, you will now make the payments to yourself.  To begin, you can estimate how long your equipment is going to last.  You should also have a pretty good idea what the replacement item is going to cost.  Armed with that information, you have what you need to calculate how much you have to put away every month in order to purchase the next piece(s) of equipment. 

When it is time to make the purchase, you will already have the money put away to complete the deal!

Here is an example.  If you need $6,000 in 60 months, you put away $100 every month.  Put this money in a separate bank account and designate it for that purpose.  Call it “equipment replacement.”  You must be diligent about this.  If you use this money for anything other than replacing your equipment, you blew it!

You won’t have the funds available when it comes time to purchase your replacement equipment.  You can use this same procedure when you need to purchase something new.  Put the money away before you make the purchase. 

Remember the rules:

1. Estimate when you need the item. Figure out the total number of months from now until your need-by date.

2. Get accurate information on various models and specifications.

3. Obtain pricing.

4. Get 2-3 quotes from different dealers or manufacturers.

5. Ask about a discount.

6. Systematically put away the necessary funds.

(Cost / months = monthly payment)

The first time you put money into a replacement fund, you will probably have to be more aggressive than the example above.  You may even want to double-pay for the item you are funding. Double payments include the one you financed and its replacement now and in the future.

Don’t let dollar amounts scare you.  As time goes on, you will be glad you could and did make the double payment.  If you can only make a single payment – do so until you can make the purchase.  Then keep making the payment to fund your future replacement of this item. 

Review the equipment replacement fund you have established each time you prepare your annual budget.  Priorities can change, as well as technologies and pricing.  Make sure your fund and associated payments are large enough to meet your needs when they come up.  Don’t be afraid to consider last year’s model if the price and equipment quality meets your needs.

Monthly funding and annual review of your replacement funds can save you from having to pay interest.  This means more money in your pocket!  At the same time, you will have the funds available to make your capital purchases when you need them!  Be sure to perform due diligence on all projected replacement purchases.

If you know someone this post will help, please share it with them!  Then scroll down to the comments section and leave me a comment on this post.  If you aren’t already a subscriber, sign up for notification emails and other promotions! 

To learn more about cash flow and budgeting, sign up for my upcoming free online Cash Flow Workshop HERE.  I will email you when the next workshop is scheduled to begin as well as sending you a link to each new weekly post in the Budgeting Essentials Blog! I will be teaching my Cash Flow Workshop soon, so don’t miss it!

If you know someone this post will help, please share it with them!  Then scroll down to the comments section and leave me a comment on this post.  If you aren’t already a subscriber, SIGN UP to receive blog notification emails and information on other promotions! 

God Bless your week!