Plan for Today and Tomorrow

Not many businesses are going to be successful without an overall business plan that includes where they are, where they want to go, and how they want to get there. One critical component of a business plan is a capital financing strategy. After all, a package printer isn’t going to grow its printing business without upgrading or updating equipment over time. Not every capital financing plan is the same, and each will be built based on company preferences, such as leasing over buying or whether or not to finance large expenditures.

Building your plan

It is difficult to pin down every component of a capital financing plan, since each will be different, but there are some commonalities. “Any capital financing strategy should be part of a larger business strategy and should be build upon a complete assessment of a company’s productivity, efficiency issues, cost savings options, and equipment,” says Jim Dugan, vice president, financial services, Heidelberg USA. “Companies should examine how investments fit into their business plans; capital projections; alternative options, including worst- and best-case scenario planning; overall financial security; and flexibility for future growth.”

Initially, as a company builds a plan, Jon Guy, president of Gallus, Inc., says that cash requirements will be greater in the initial period of expanding your business. “Once business builds up, you ‘live off the land,’” he says. He adds that you must ensure you have enough capital to cover not only machines, but consumables as well.

Peter Levy, president of Poly-Pak Industries, suggests that the most important component of a capital financing strategy is to “make sure your return more than pays for your expenditure.”

Deciding how to pay

How to pay for capital investments includes many options. Some prefer to lease, some prefer to finance, while some prefer to buy equipment outright. “Typically, only the largest print companies have the resources and existing cash flow to pay cash for major capital investments,” says Dugan. “The majority of Heidelberg’s customers finance their purchases with their own lenders, while others may take advantage of using Heidelberg’s financing partners.”

Paul Styers, president of Styers Equipment Co., concurs. “Most converters finance through their bank or find their own leasing company depending on the size of the transaction,” he says. “Small transactions, under $50,000, are usually cash deals.”

Levy says Poly-Pak uses its bank for all capital expenditures. “[It] doesn’t cost us any more and the bank is always looking to lend money on equipment, he says, adding that Poly-Pak finances most of its capital expenditures. “Money is cheap today, so we borrow instead of taking out of our cash account.”

“Each company and each situation is different,” adds Dugan. “Generally speaking, most companies do not have the resources to buy equipment outright. Deciding whether to [purchase outright or finance] is completely dependent on the financial capability and business needs of the individual company.”

Heidelberg is not a primary source for financing, according to Dugan, but can be an alternative resource for those customers interested in additional financing options. “As part of our commitment to helping companies maximize investments across the shop and find new ways to run their businesses better, we also help our customers with financing alternatives and providers,” he says.

Heidelberg can offer investment and consulting services to help customers analyze their current output and identify ways to run their businesses with maximum efficiency and productivity, and to develop their overall equipment and financing strategies. “We walk them through all of the financing options that are available to help them determine which strategy may make the most sense for their businesses,” Dugan says.

Guy cites operating leases as a current trend in the industry. He says that this method is becoming more common because operating leases do not show up on balance sheets. In these cases, the financial institute owns whatever is being leased.

Plan for the long-term, but not eternity

John Torchia, director, commercial administration, Bobst Group North ­America, says that any decision to purchase additional capital equipment, “should entail an analysis of the additional revenue such assets will bring in and/or expenses to be reduced. The residual value of the assets being considered should also play a large part in the decision.” For example, he says Bobst equipment typically maintains its value after many years and has a useful life that goes well beyond the typical financing terms.

Dugan adds, “Companies should think long-term when it comes to any investment and identify those investments that will pay off in terms of impacting their efficiency and productivity across the shop.” He reinforces that having a capital financing strategy that is tied to a company’s overall business strategy allows companies to find ways to reduce costs and expenses wherever possible. This ensures that they are positioned to meet future customer needs and to help guarantee success.

Finally, Dugan states that when implementing capital finance strategies, it is best to invest in equipment that will be the most productive and cost-efficient for each individual company, and that will maintain its value for a long time. “It is important to look past financial deals when considering a large purchase,” he recommends, “and to be certain that the equipment your company is considering will produce the best results—today and tomorrow.” pP