capital equipment in business plan

What is capital equipment? Definition and meaning

Capital equipment refers to items that are not permanently attached to buildings or grounds (freestanding) and cost more than $5,000 net of sales tax, freight and installation costs. It must have a useful life of at least one year and is not consumed in the normal course of business.

If the item costs less than $5,000, is freestanding and has a use life of one year or more, it is generally known as non-capital equipment.

Capital equipment is used to manufacture a product or provide a service. It is used to sell, store and deliver merchandise ( the term ‘merchandise has several meanings – in this context it means ‘goods’ or ‘products’).

Generally classified by accountants as capital assets, capital equipment provides operating benefits over a sustained period.

According to ft.com/lexicon, capital equipment is :

“Machinery, tools, vehicles, etc. used to generate a finished product or service.”

Capital equipment may include items acquired in several different ways, which can be bought, leased or donated.

Some items, such as land or software, may meet the general requirements but tend to be excluded from the category.

Capital equipment definition varies

Items that are classed as capital equipment vary from business to business and industry to industry. In colleges and schools, it may include microscopes, scanning machines and computers. In the mining industry, it could include sifters, drills, or underground trains.

The acquisition of capital equipment items is generally planned, managed and financed on an organization-wide basis. Choices are generally decided by a committee, which receives capital funding requests and prioritizes them.

Marty Schmidt writes in an article published by Solution Matrix Limited:

“Authorization for acquisition and funding is granted for highest priority proposals first, continuing through lower priority proposals, until the capital spending ceiling for the current capital budgeting cycle is reached.”

“Acquisitions of non-capital items, by contrast, is typically initiated and authorized by many different individual managers at different levels.”

Video – Capital Equipment

In this video, James Kilgour, a capital equipment specialist, talks about his job. He selects equipment for specific veterinary practices. He says his service saves clients a great deal of time.

Share this:

• Renewable Energy
• Artificial Intelligence
• 3D Printing
• Financial Glossary

Updated on September 23, 2023

What is Capital Equipment & How To Manage It

Capital Equipment is any equipment a company has or needs that will provide a benefit for the company at some point in the future by generating profits, reducing expenses, sold for cash or retain some of it's value over a long period of time. For equipment to be defined as Capital Equipment, it has to be essential to the companies operations, difficult to be replaced, a operational life of more than1 year and produce a value more than what it cost to purchase . Since it will have a usage of more than one year, Capital Equipment is also defined as a fixed asset. 

Key Points: Capital equipment is expensive, long-lasting equipment   These purchases tend to represent major investments in your company   Few businesses can buy capital equipment out of pocket, so many rely on financing  

The Purpose of Defining Equipment as Capital Equipment

The goal of designating equipment as capital equipment is to identify which items will serve as long-term investments in a company's operations and which are intended as short-term investments.

Capital equipment must be distinguished from other types of expenses, such as operating expenses, which are normally billed the month it was purchased. A business's capital equipment consists of items such as machinery, vehicles, tools, buildings, and furniture that can be utilized for many years.

These items are regarded as investments with a long-term horizon since they generate recurring rewards across numerous accounting periods. Rather than incurring all costs in a single year, corporations can spread out these costs across time by capitalizing them.  It is also essential for firms to effectively track capital expenditures in order to analyze their return on investment (ROI). Companies are then able to make informed judgments regarding future investments and manage resources wisely when they maintain reliable records of capital expenditures.

• Examples include machinery, cars, equipment, structures, furnishings, tangible and intangible items.
• Instead of deducting all expenditures in a single year, capitalizing purchases helps spread out expenses over time.
• Accurately monitoring capital expenditures enables monitoring ROI and making educated decisions on future investments.
• Capital equipment is depreciated throughout its useful life and knowing by how much provides a company with better control over it's cash flow. 
• By defining certain items as capital equipment , businesses can better manage their assets and ensure that they are making wise long-term investments.
• In certain instances , companies may be able to deduct capital expenditures in a single year.
• By assessing their capital equipment , businesses may ensure they are not overinvesting in items that may no longer be useful. 

How To Effectively Manage Your Current Capital Equipment Assets

A crucial aspect of business operations is the effective management of capital equipment assets. It is necessary to manage these assets to ensure that they remain in good shape, operate at maximum efficiency, and generate the anticipated return on investment.

Conduct regular maintenance and inspections: Frequent maintenance and inspections are necessary for keeping your equipment in peak operational condition. This involves routine equipment inspections, cleaning, and maintenance. By doing routine maintenance, you may identify and resolve minor issues before they become big ones, ensuring your equipment's continued dependability and efficiency.

Keep accurate records: Effective asset management requires accurate documentation of equipment maintenance, repair, and replacement. You can follow the equipment's history, monitor its performance, and make educated decisions on repairs, replacements, and upgrades with the help of accurate records. In addition, it allows you to spot patterns and trends in equipment usage and maintenance, allowing you to create successful preventative maintenance programs.

Implement an asset tracking system: Installing an asset tracking system permits you to monitor the location, status, and utilization of your equipment in real time. This allows you to improve equipment use, detect underutilized or overutilized equipment, and make educated asset allocation and disposition decisions.

Develop a comprehensive asset management plan: Create a comprehensive plan for asset management Creating a thorough plan for asset management is crucial for effective asset management. This plan should detail your asset purchase, maintenance, and disposal procedures, as well as an upgrade, replacement, and retirement schedule. In addition, performance indicators and targets for asset use, maintenance, and downtime should be outlined.

Plan for Replacement: Capital equipment assets will eventually require replacement. Prepare for replacement by tracking the useful life of your assets and developing a schedule for replacement. This can help to reduce equipment failure-related downtime and unforeseen expenditures.

Utilize Technology:  There are a variety of technological resources available to properly manage capital equipment assets. For instance, computerized maintenance management systems (CMMS) can assist with maintenance scheduling, inventory tracking, and identifying possible problems. Use these tools to streamline and improve your equipment management operations.

Successful capital equipment asset management demands a proactive and strategic strategy , including routine maintenance, precise recordkeeping, asset tracking, comprehensive planning, and staff empowerment. You may assure optimal equipment performance, avoid downtime, and improve long-term operational efficiency and profitability by applying these guidelines.

How To Effectively Manage Future Capital Equipment Investment

Capital equipment investments are substantial expenditures that can have long-term repercussions for a company's finances. As a result, it is essential to carefully budget for these investments to guarantee that your business can afford them and that they will generate the anticipated returns.

• Assess your current financial situation: Before committing to an investment in capital equipment, you should evaluate your present financial standing. Assess your cash flow, debt levels, and financial objectives when determining how much you can afford to invest. This will assist you avoid overspending and ensure that the investment is consistent with your entire financial strategy.
• Research the equipment and its costs: Once you've determined how much you can afford to invest, conduct research on the equipment and its associated costs. Consider the purchase price, the cost of upkeep, and any additional expenses related with the investment. This can help you develop a more accurate budget and provide you with a deeper grasp of the investment's entire cost.
• Consider financing options:  If you do not have the cash on hand to make the investment in full, you might examine financing options. This may involve obtaining a loan, leasing the necessary equipment, or researching further finance possibilities. Compare the expenses and benefits of each alternative to discover the best cost-effective option for your company.
• Create a detailed budget: Once you have a comprehensive grasp of the costs connected with the investment, you should develop a detailed budget. This should cover all expenditures involved with the investment as well as any additional fees that may develop during its lifetime. Consider any prospective revenue streams that could balance the investment's expenses.
• Monitor and alter the budget: Finally, it is vital to constantly monitor and adapt the budget. Track your spending and revenue streams to ensure the investment is working as anticipated. Adjust your budget, if required, to keep your finances on track and confirm that the investment is yielding the anticipated returns.

Efficiently budgeting for capital equipment purchases requires evaluating your financial status, studying equipment pricing, considering financing possibilities, developing a precise budget , and constantly reviewing and changing the budget. By adhering to these guidelines, you can make well-informed decisions on capital equipment investments and ensure that they align with the financial objectives of your business.

Capital Equipment vs. Operating Expenses: What's the Difference and Why Does It Matter? 

Capital expenditures and operating expenses are two very distinct forms of corporate expenditures. Capital equipment is a significant investment in a company's productivity and efficiency, whereas operating expenses are the ongoing costs connected with day-to-day operations. In order to budget efficiently and make well-informed decisions, firms must comprehend the distinction between these two categories of expenditures.

How to Depreciate Capital Equipment 

Depreciation is the process of accounting for the loss in value of a capital asset over time due to wear and tear, obsolescence, or any other condition that causes the asset to become obsolete.

Businesses must depreciate capital equipment to account for the cost of purchasing these assets and to predict future replacement costs. Here are five practical suggestions to help organizations successfully depreciate capital equipment:

Choose the right depreciation method:  Several depreciation methods are available, such as straight-line, declining balance, and sum-of-years'-digits. Each method has its own benefits and drawbacks. Straight-line is the simplest and most prevalent way, while declining balance is more aggressive and sum-of-the-years'-digits falls in the middle.

Straight-line capital depreciation = ( The cost of the equipment - The estimated salvage value) ÷ Estimated useful life of the equipment

Determine the equipment's useful life: The useful life of an asset is the period over which it is expected to be beneficial to the business. Knowing the equipment's useful life is vital for appropriately calculating depreciation costs. The useful life can be approximated using variables such as the equipment's age, condition, and frequency of usage.

Determine the salvage value: The salvage value is the asset's projected value at the end of its useful life. This value is removed from the asset's initial cost to calculate its depreciable basis. When computing depreciation expenses using the declining balance technique, the salvage value is a key consideration.

Keep accurate records: To successfully depreciate capital equipment, organizations must maintain precise records of the asset's acquisition date, cost, usable life, and salvage value. This data is utilized to compute depreciation costs and track the asset's value over time.

Consult with a professional: Depreciation is a complicated process. Organizations with considerable capital assets should contact with a tax expert or an accountant to verify that they are depreciating the assets effectively. An expert can provide advice on selecting the appropriate depreciation method, evaluating the usable life and salvage value of the asset, and assuring the accuracy of the data.

Accounting for the depreciation of capital equipment is critical for businesses with considerable capital assets. To properly depreciate capital equipment, organizations must select the appropriate depreciation method, evaluate the usable life of the equipment, calculate the salvage value, maintain correct records, and, if required, consult an expert.

Different Definitions of Capital Equipment

There are a few different types of capital equipment.

• Fixed Capital Equipment (FCE): This includes capital equipment that cannot be moved from its location. For example, a piece of real estate would be a type of FCE.  
• Stationary Capital Equipment (SCE): Stationary capital equipment can’t be moved without a high cost and are generally housed in the same location.  
• Portable Capital Equipment (PCE): Portable capital equipment is more easily moved as needed. For example, audio-visual equipment may be expensive capital equipment, but can be moved without significant cost or effort.  

Capital Equipment Loans

Capital equipment loans are a way to finance the purchase of expensive machinery and equipment. There are many sources of funds to consider.

One is a bank loan or loan from an online lender. These loans are relatively simple. You borrow a set amount to make the purchase, then pay the loan off over the course of years. Typically, the equipment you buy serves as collateral for these loans, making them easier to qualify for. You might like to check out loan terms of the best equipment financing lenders here. 

Many equipment sellers may also offer financing as an option when you purchase equipment.

For less expensive capital equipment, you could consider using a line of credit or even a business credit card. However, credit cards and equipment lines of credit would only work for relatively cheap equipment.

SBA loans are another good option, especially for newer companies. The Small Business Administration offers lenders guarantees on these loans, which make them easier to qualify for. Best of all, these loans can offer up to $5 million or more in funding. However, they can take longer to originate, so they’re not great for quick funding.

Capital Equipment Leasing

An alternative to buying capital equipment is leasing it. With a lease, you’re renting the equipment from its owner instead of purchasing it.

Leasing has the benefit of being less expensive. You don’t need to come up with a down payment and the monthly lease payments are typically smaller than the cost of a loan payment. With equipment lease , you may also have less to worry about when it comes to maintenance and repairs.

However, leasing has a few drawbacks.

The main one is that you never build equity in the equipment . With financing, you’d eventually own the equipment outright and get to use it for years without having to make monthly payments. If you ever decide to upgrade, you could sell the equipment to recoup some of the cost.

However, leasing means you always have to make a monthly payment if you want to keep using the equipment.

Leasing can also be less flexible in some ways. You have to pay a fee to cancel a lease early if you want to change equipment. You also can’t make modifications or customizations to the equipment.

What Are the Risks Associated with Capital Equipment?

• Cost overruns are one of the primary risks connected with capital equipment. Investing in capital equipment frequently entails hefty up-front costs, and the acquisition of the equipment may cost more than anticipated.
• Maintenance costs may exceed the budget if unexpected repairs are required or if replacement parts are difficult to get. Cost overruns can strain a company's financial resources and result in a decline in profitability.
• Operational disruption is an additional risk connected with capital equipment. Unexpected malfunctions or breakdowns of capital equipment might result in production and service delivery delays. If a business is unable to meet client requests owing to an interruption in operations, it might suffer reputational harm and revenue loss.
• Safety concerns are the fourth risk linked with capital equipment. If capital equipment is not adequately maintained or is operated improperly, it might be hazardous. Due to malfunctioning equipment or inadequate training, employees may be exposed to hazardous working circumstances, which could result in injury or even death.
• Can become obsolete over time as a result of technology improvements or alterations in consumer preferences. Businesses may find themselves with outmoded capital equipment that must be replaced or modernized in order to maintain their market competitiveness. This can need more expenses and time investments, which can have a detrimental effect on a company's bottom line.

The Role of Data Analytics in Capital Equipment Management

Capital equipment management is growing more and more reliant on data analytics. It offers businesses with data regarding the condition of their capital equipment, enabling them to make decisions and plan for the future . It can be used to monitor performance and predict future demands, enabling businesses to plan for prospective problems and maximize their investments.

Information can shed light on the cost effectiveness of capital equipment. By monitoring the expenses associated with maintaining and replacing equipment, firms can make educated decisions regarding when to invest in new machinery or services, thereby preserving their competitive advantage in the market.

In addition, data analytics can assist businesses find areas where they might save money by streamlining procedures or decreasing labor costs . In addition to tracking production rates, data analytics enables businesses to identify places where more efficient processes should be employed.

By examining production output trends over time, businesses may discover which methods are most effective and make necessary adjustments . This assists in optimizing procedures, avoiding waste, and reducing unnecessary costs.

• Cost Efficiency: Gives insight into the cost-effectiveness of capital equipment by tracking the costs involved with its maintenance and replacement.
• Production Rates: Studying manufacturing output trends over time enables firms to discover which strategies are most successful for optimization purposes and to decrease waste or unnecessary expenses.
• Reliability:  Businesses can use data analytics to monitor the reliability of capital equipment over time in order to take preemptive steps to increase productivity while avoiding costly repairs or downtime caused by faulty machinery.
• Maintenance: Data analytics enables organizations to discover areas requiring maintenance before greater problems occur, allowing them to invest in new equipment or services as necessary. Add 3 more bullet points.
• Risk Management: Data analytics can be used to examine potential risks connected with capital equipment, thereby assisting businesses in mitigating the possibility of unanticipated problems affecting operations.
• Long-Term Planning: Businesses can utilize data analytics to plan for the future by anticipating future demands and taking precautions to ensure readiness.
• Prediction of Costs: Data analytics can also be used to estimate future costs associated with maintenance and replacement of capital equipment, allowing organizations to budget accordingly.

How Does a Company Report Its Capital Equipment?

Using the financial accounts provided in its annual report, a corporation discloses its fixed assets. Capital equipment consists of assets utilized in the functioning of a business, such as automobiles, buildings, furniture, and computers. 

These assets are listed as property and equipment on the balance sheet (PP&E) . On the balance sheet, corporations list their PP&E under "Asset," with subheadings for each asset category. As a result, businesses will report the carrying amount and depreciation rate associated with the value of all capital equipment owned during a given accounting period.

Depreciation: The cost of capital assets is depreciated over time to represent their diminishing value as they age and wear out. Businesses may calculate depreciation using many methods, such as straight-line, accelerated, or sum-of-years-digits.

Utilizing different depreciation methods will result in companies having varying values for PP&E on their balance sheets when compared to other companies that utilize different depreciation methods.

Fair Value Adjustments: Businesses may also execute fair market value adjustments on certain forms of capital equipment, such as buildings and land, that are recorded at historical costs rather than current market values. Fair market value adjustments can have a substantial impact on a company's financial condition, depending on how much they fluctuate from year to year and whether they are marked up or down from historical cost levels.

Revaluations: Revaluations occur when an external expert appraises a piece of capital equipment and assigns it a higher or lower value than what was reported in the previous accounting period as a result of changes in market conditions or technological advancements resulting in more efficient machines, etc. Reevaluations may be conducted annually or at intervals chosen by management, depending on how frequently advances in technology impact the appropriate industry sector.

Dispositions & Impairment Charges: When businesses dispose of existing property, plant, and equipment (PP&E), they must report any gains or losses from disposal transactions as well as, if appropriate, impairment costs owing to deteriorating economic conditions affecting asset values. Disposals and impairment charges must be accounted for when reporting capital equipment since they are non cash expenses that will affect net income statistics over time but do not appear directly in cash flow statements because there is no linked cash transaction occurring at this moment. This is crucial for investors to consider when analyzing a company's financial statements, as these non-cash expenses can have a substantial impact on reported earnings or losses.

Internal & External Use: Businesses record both internal and exterior use of capital equipment. Externally, assets are used to offer investors information such as current asset values and net income numbers. Internally, assets are utilized to track the cost of assets owned by the company and precisely calculate depreciation charges. This enables investors to have a better understanding of a company's financial health by examining PP&E values and other relevant data, such as depreciation rates and fair market value adjustments.

Capital Expenditure Tracking: Businesses must track their capital expenditures each accounting period in order to appropriately record any changes in asset values or impairments resulting from economic downturns or technical improvements.  This enables businesses to have an accurate snapshot of their financial status at any given time, enabling them to make more educated decisions about how to spend their resources in the future.

Off-Balance Sheet Items: Some pieces of capital equipment, such as leased assets that are not wholly held by the company, may be reported off-balance sheet.  These items must still be tracked and reported in order for a company's financial statements to be correct, but they will not appear immediately on the balance sheet because they are not owned by the company.

Pieces of capital equipment are the important, expensive pieces of machinery and tools that make a business run. They’re a major investment, but essential for your company to produce a profit. When acquiring capital equipment for your company, consider both equipment financing and leasing options and decide which is right for you.

This app literally changed my like. It provides a great experience. I absolutely love it!

• https://www.sba.gov/blog/business-equipment-financing-leasing-7-key-tips-know 
• https://www.nationalfunding.com/equipment-leasing/ 
• https://www.myaccountingcourse.com/capital-equipment 
• https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-business-guides/glossary/financial-statements  

About the Author

I have in-depth experience in reviewing financial products such as savings accounts, credit cards, and brokerages, writing how-tos, and answering financial questions both simple and complicated.

Related Articles

Equipment Financing For Startups

Equipment Financing: Everything You Need To Know

Equipment Leasing vs. Financing: Which One?

Equipment Financing for Bad Credit: A Guide for Businesses

Equipment Financing Rates & How They Affect Your Payments

Equipment Breakdown Coverage: What is It & Should You Get a Policy?

How to Write Off Equipment for A Small Business

Equipment Line of Credit: What It Is and How To Decide

Used Equipment Financing: Is It the Right Choice for Your Business?

How to Depreciate Equipment: A Step-by-Step Guide

Equipment vs Supplies: The Differences & Why They Matter

Is Equipment a Current Asset & How to Classify It Correctly

Camera Financing For Your Business: Know All The Options

Heavy Equipment Financing - What to Know Before You Apply

Construction Equipment Financing: Know All The Options

Farm Equipment Financing: What Is It & How to Apply

Financing Semi-Trucks: What You Need To Know

Restaurant Equipment Financing: Unlocking the Possibilities

Medical Equipment Financing: How to Use It Right

Dental Equipment Financing: What Every Dentist Needs to Know

Equipment Needed to Start a Bakery & How to Finance It

Gym Equipment Financing - Practical Tips on How to Get Funding

Brewery Equipment Financing: Helping Your Brewery Thrive

Salon Equipment Financing: Best Way to Lower Your Upfront Costs

Forestry Equipment Financing Made Simple and Accessible

Equipment Finance Agreement - Why It's Worth Getting One

Equipment Lease Agreement - Key Points to Know Before Signing

Equipment Management Software: Why Your Business Can’t Succeed Without It

• Starting a Business
• Growing a Business
• Business News
• Science & Technology
• Money & Finance
• Subscribers For Subscribers
• ELN Write for Entrepreneur
• Store Entrepreneur Store
• Spotlight Spotlight
• United States
• Asia Pacific
• Middle East
• South Africa

Copyright © 2024 Entrepreneur Media, LLC All rights reserved. Entrepreneur® and its related marks are registered trademarks of Entrepreneur Media LLC

• How to Use Your Business Plan Most Effectively
• The Basics of Writing a Business Plan
• 12 Reasons You Need a Business Plan
• The Main Objectives of a Business Plan
• What to Include and Not Include in a Successful Business Plan
• The Top 4 Types of Business Plans
• A Step-by-Step Guide to Presenting Your Business Plan in 10 Slides
• 6 Tips for Making a Winning Business Presentation
• 12 Ways to Set Realistic Business Goals and Objectives
• 3 Key Things You Need to Know About Financing Your Business
• How to Perfectly Pitch Your Business Plan in 10 Minutes
• How to Fund Your Business Through Friends and Family Loans and Crowdsourcing
• How to Fund Your Business Using Banks and Credit Unions
• How to Fund Your Business With an SBA Loan
• How to Fund Your Business With Bonds and Indirect Funding Sources
• How to Fund Your Business With Venture Capital
• How to Fund Your Business With Angel Investors
• How to Use Your Business Plan to Track Performance
• How to Make Your Business Plan Attractive to Prospective Partners
• Is This Idea Going to Work? How to Assess the Potential of Your Business.
• When to Update Your Business Plan
• How to Write the Management Team Section to Your Business Plan
• How to Create a Strategic Hiring Plan
• How to Write a Business Plan Executive Summary That Sells Your Idea
• How to Build a Team of Outside Experts for Your Business
• Use This Worksheet to Write a Product Description That Sells
• What Is Your Unique Selling Proposition? Use This Worksheet to Find Your Greatest Strength.
• How to Raise Money With Your Business Plan
• Customers and Investors Don't Want Products. They Want Solutions.
• 5 Essential Elements of Your Industry Trends Plan
• How to Identify and Research Your Competition
• Who Is Your Ideal Customer? 4 Questions to Ask Yourself.
• How to Identify Market Trends in Your Business Plan
• How to Define Your Product and Set Your Prices
• How to Determine the Barriers to Entry for Your Business
• How to Get Customers in Your Store and Drive Traffic to Your Website
• How to Effectively Promote Your Business to Customers and Investors
• What Equipment and Facilities to Include in Your Business Plan
• How to Write an Income Statement for Your Business Plan
• How to Make a Balance Sheet
• How to Make a Cash Flow Statement
• How to Use Financial Ratios to Understand the Health of Your Business
• How to Write an Operations Plan for Retail and Sales Businesses
• How to Make Realistic Financial Forecasts
• How to Write an Operations Plan for Manufacturers
• What Technology Needs to Include In Your Business Plan
• How to List Personnel and Materials in Your Business Plan
• The Role of Franchising
• The Best Ways to Follow Up on a Buisiness Plan
• The Best Books, Sites, Trade Associations and Resources to Get Your Business Funded and Running
• How to Hire the Right Business Plan Consultant
• Business Plan Lingo and Resources All Entrepreneurs Should Know
• How to Write a Letter of Introduction
• What To Put on the Cover Page of a Business Plan
• How to Format Your Business Plan
• 6 Steps to Getting Your Business Plan In Front of Investors

What Equipment and Facilities to Include in Your Business Plan Investors will want a detailed list of the equipment your business requires and where you plan to operate. Here's a checklist to get you started.

By Eric Butow • Oct 27, 2023

Opinions expressed by Entrepreneur contributors are their own.

This is part 1 / 11 of Write Your Business Plan: Section 5: Organizing Operations and Finances series.

A manufacturer will likely need all sorts of equipment, such as cars, trucks, computers, telecom systems, and machinery of every description for bending metal, milling wood, forming plastic, or otherwise making a product out of raw materials. A lot of this equipment is expensive and hard to move or sell once purchased.

Moreover, manufacturers often require a facility to house this equipment and operate the business.

Related: How to List Personel and Materials in Your Business Plan

Naturally, investors are very interested in your plans for purchasing equipment and facilities. But this part of your plan doesn't have to be long—just be sure it's complete.

Make a list of every sizable piece of equipment you anticipate needing. Include a description of its features, its functions, and, of course, its cost. In addition, list all facilities you plan on buying or leasing.

Be ready to defend the need to own the more expensive items. Bankers and other investors are loath to plunk down money for capital equipment that can be resold only for far less than its purchase price. Also, consider leasing what you need if you are starting out. Once you show that you are responsible for paying your bills and sales look good, you can apply for a small business loan or a line of credit with greater success.

Related: How to Write an Operations Plan for Manufacturers

Unless you're a globe-trotting consultant whose office is his suitcase, your plan will need to describe the facilities in which your business will be housed. Even home-based business owners now describe their home offices as the trend continues to snowball, thanks largely to mobile communications.

Land and buildings are often the largest capital items on any company's balance sheet. So it makes sense to go into detail about what you have and what you need. Decide first how much space you require in square feet. Don't forget to include room for expansion if you anticipate growth. Now consider the location. You may need to be close to a labor force and materials suppliers. Transportation needs, such as proximity to rail, interstate highways, or airports, can also be important. Next, ask whether there is any specific layout that you need.

Related: What Technology to Include In Your Business Plan

Draw up a floor plan to see if your factory floor can fit into the space you have in mind. Manufacturers today do most of their ordering and communications online, so you need to ensure that your location has excellent connectivity.

To determine the cost of facilities, you'll first have to decide whether you will lease or buy space and what your rent or mortgage payments will be for the chosen option. Don't forget to include brokerage fees, moving costs, and the cost of any leasehold improvements you'll need. Finally, take a look at operating costs. Utilities, including phone, electric, gas, water, and trash pickup are concerns; also consider such costs as your computer connections, possibly satellite connections, maintenance, and general upkeep.

Related: Bursting at the Seams? Tips for Expanding Your Startup's Office Space

Facilities checklist

Use this checklist to analyze your facility's requirements.

• Initial space
• Expansion space
• Total space
• Technology requirements, including connectivity
• Proximity to the labor pool
• Proximity to suppliers
• Transportation availability
• Layout Requirements:
• Purchase/lease costs
• Brokerage costs
• Moving costs
• Improvement costs
• Operating costs

These aren't the only operations concerns of manufacturers. You should also consider your need to acquire or protect such valuable operations assets as proprietary processes and patented technologies.

Related: How to Determine How Much Real Estate Your Business Needs

For many businesses— for example, Coca-Cola with its secret soft drink formula comes to mind—intellectual property is more valuable than their sizable accumulations of plants and equipment. Investors should be warned if they must pay to acquire intellectual property. If you already have it, they will be happy to learn they'll be purchasing an interest in a valuable and protected technology.

More in Write Your Business Plan

Section 1: the foundation of a business plan, section 2: putting your business plan to work, section 3: selling your product and team, section 4: marketing your business plan, section 5: organizing operations and finances, section 6: getting your business plan to investors.

Successfully copied link

• Baker University
• Subject Guides

Writing a Business Plan - Financials

• Capital Equipment
• Introduction
• Funding Sources
• Start-up Costs
• Financial Issues
• Equipment used to manufacture a product, provide a service, or sell, store, and deliver merchandise
• NOT equipment used in the normal course of business, but equipment one will use and wear out as one does business.
• Does not include items expected to be replaced annually or more frequently.

Where to obtain capital equipment

• The Internet, in general
• Vendor catalogs
• << Previous: Funding Sources
• Next: Start-up Costs >>

Capital Equipment – A Complete Guide In 2022

• June 17, 2021
• Capital Equipment – A Co ...

There are two schools of thought when it comes to determining whether to buy and register capital equipment on your books. The first option is to buy and install the necessary equipment at a time throughout the year when increased demand merits it, ensuring adequate cash flow to cover additional loan payments or the outright purchase of the equipment. 

The second way is to purchase and install the equipment before the start of the business year or when you’ll really need it, giving time for training and problem fixes before going into full production.

What Is Capital Equipment?

Physical things bought for productive activity are referred to as capital equipment. These products are commonly purchased by businesses in order to grow their operations or stay up with new techniques or technological advancements. 

Capital equipment has a useful life of more than one year and is employed in a company’s productive activities. It’s a financial commitment made by a corporation to continue or expand its manufacturing operations. 

Example Of Capital Equipment

Plastic Pipes Co. is a manufacturer of water pipes for the building and residential markets. The company’s Board of Directors is now examining the investment strategy for the coming year. The plan calls for a total investment of $5,400,000, which will be split among the following programmes: $1,400,000 for a new building, $2,000,000 for capital equipment, $1,500,000 for stock investments, and $500,000 for new staff dining facilities. 

The capital equipment investment includes the purchase of new machinery to establish three new production lines, as well as the procurement of new packaging equipment and the renovation of the raw material storage. This investment program is expected to boost the company’s profits per share by 50% in the coming fiscal year. 

Types of Capital Equipment

1. Fixed Capital Equipment (FCE)

• A building’s capital equipment is permanently linked to it.
• FCE has a useful life of more than two years and costs $5,000 or more to acquire.
• The FCE’s removal would have a significant impact on the building’s worth.
• Fixed capital equipment is regarded as a part of the building and an enhancement to the building.
• Fixed capital equipment isn’t given an inventory number and hence isn’t recorded in inventory records.

Heating and electrical equipment, plumbing fixtures, built-in shelving and cupboards, and inlaid carpets are examples of permanent capital equipment.

2. Movable Capital Equipment (MCE)

• Capital equipment that is not permanently linked to a building or structure is referred to as movable capital equipment.
• The environment in which mobile capital equipment operates is not an important element of its design. Its removal has no effect on the item’s worth or the value of the real estate.
• MCE items have inventory numbers assigned to them and are kept in the Generalized Inventory file. Any change in status, such as moving, selling, surprising, stealing, trading-in, and so forth, must be notified to Purchasing.

Movable capital equipment is further defined as stationary or portable.

 3. Stationary Capital Equipment (SCE)

• Because of their size and/or use, several pieces of transportable capital equipment are typically stored in the same place.
• These objects are categorized as stationary, and their positions are recorded in the inventory record permanently.

4. Portable Capital Equipment (PCE)

• Because of their size, usage, or application, many pieces of moveable capital equipment are continually relocated from one location to another.
• Dictating machines, audio-visual equipment, test meters, and other items are examples.
• This category includes items that are referred to as portable capital equipment.
• A “home” location must be set to PCE. A record of the PCE’s present location, including the name of the person to whom it is provided, should be preserved at the “home” location. Home locations must also be notified to Purchasing so that inventory data may be updated.

Attributes Of Capital Equipments

1. acquisition cost .

For capital acquisitions, each facility or practice will have a defined cost barrier. This may cost as little as $500 or as much as $5000, depending on the size of your practice, and is actually decided by the administrative procedure of the facility. A small clinic with fewer assets may afford to deal with lower criteria since it has more time.  

The price of the equipment and additional costs associated with the sale, such as shipping and setup, are included in acquisition expenses. Items like printers, keyboards, and software might be included in the cost of purchases with peripherals, such as computers.

2. Not Disposable or Consumable

Capital expenditures cannot be decided only on the basis of cost. Consumables, by definition, are goods that are used up fast. Some healthcare expenditures may reach the cost criterion, but they may not qualify as capital if they are acquired to be utilized, or “consumed.”

Capital equipment is a type of asset that should be identified and inventoried as such, as well as being subject to depreciation.

3. Stand Alone

Even if a big component acquisition meets both the cost and non-consumable criteria, it may not be considered capital equipment on its own. The term “stand-alone” refers to an item that may be utilized on its own. Understanding this feature can assist you in appropriately grouping components so that they may be priced and documented with the major capital equipment if necessary. 

Keep in mind, however, that your procurement process may allow you to add value or prolong the life of an existing piece of capital equipment by purchasing subsequent components such as capital equipment. The value of the sponsored equipment might be increased by the subsequent purchase. 

4. Useful Life of One Year or More

A basic definition of a capital asset is one that is bought with the intention of making a profit and will benefit the firm for at least a year. Additionally, your capital equipment must have a useful life of more than one year in order to meet present value and future value in computing depreciation . If it doesn’t, it’ll be classified as consumable by most accounting systems. 

5. Qualifies as Tangible Property

Non-tangible assets that benefit a firm, such as trademarks and intellectual property, are included in the definition of capital assets. However, in order to comprehend capital equipment purchase, the final feature should be that it is a physical asset . 

Tangible property is defined by taxing jurisdictions as everything that can be moved and is used in the company. Items acquired for resale may not qualify as tangible property and would be classified as inventory rather than capital equipment. 

Final Thoughts

Capital Equipment is classified as a non-current asset in the financial world, indicating it is depreciated and capitalized over the course of its useful life. In general, we choose contemporary technology and equipment that can produce a higher-quality product at a cheaper cost and with less waste. 

long-term objectives, future technology developments, the need for new goods, and other considerations unique to each firm must all be considered when making capital investment decisions.

• What’s The Best Strategy For Avoiding ATM Fees?
• Which Type Of Account Typically Has Low Liquidity?
• How to Buy Green Axis Capital Corp Stock?

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

• Create mode – the default mode when you create a requisition and PunchOut to Bio-Rad. You can create and edit multiple shopping carts
• Edit mode – allows you to edit or modify an existing requisition (prior to submitting). You will be able to modify only the cart that you have PunchedOut to, and will not have access to any other carts
• Inspect mode – when you PunchOut to Bio-Rad from a previously created requisition but without initiating an Edit session, you will be in this mode. You cannot modify any Cart contents
• Order Status
• Quick Order
• Bioprocessing
• Clinical Research
• Drug Discovery & Development
• Translational Research
• Wastewater Surveillance
• Diabetes / Hemoglobinopathies
• Hospital / Clinical Core Lab
• Infectious Disease
• Newborn Screening
• Transfusion Medicine
• Quality Control
• Food & Beverage Testing
• Classroom Education
• Bioprocess Analytics
• Bioprocess Chromatography
• Cell Line Development / Characterization
• Cell Research
• Gene Expression Analysis
• Mutation Detection
• Pathogen Detection
• Protein Expression / Characterization / Quantitation
• Viral / Vector Characterization
• Bacteriology
• Blood Typing, Screening & Antibody Identification
• Hemoglobinopathies
• Infectious Disease Testing
• Molecular Diagnostics
• Data Management Systems
• Proficiency Testing & EQAS
• Verification & Validation
• Food & Beverage Safety Testing
• Cannabis Testing
• Veterinary Diagnostics
• Water Quality Testing
• Biotechnology Textbook & Program
• DNA, PCR & Agarose Gel Electrophoresis
• Genetic Engineering, Microbiology & Model Organisms
• Proteins, Enzymes & ELISA
• COVID-19 Assay & Research
• Cell Isolation & Analysis
• Chromatography
• Digital PCR
• Electrophoresis & Blotting
• Flow Cytometers
• Immunoassays
• PCR & qPCR
• Sample Preparation & Quantitation
• Transfection
• Autoimmune Testing
• Blood Typing & Antibody Detection
• Diabetes Testing
• Hemoglobinopathy Testing
• Microbiology Testing
• Quality Controls
• Software & Data Analysis
• Molecular Testing
• B2B Commerce Solutions
• Custom PCR Plastics & Reagents
• Expert Care Service
• New Labs & New Grants
• Remote Diagnostic Services
• Supply Center Program
• Instrument Service Support Plans
• Trade-Up Program
• Certificate of Analysis
• Literature Library
• ​​Electronic IFUs
• Product Safety Data Sheets
• Quality Management Systems Certificates
• Quality Control Inserts
• Life Science
• Clinical Testing Solutions
• Bioprocess Chromatography Resources
• Classroom Resources
• Product News
• Corporate News

How to Make a Business Case for Capital Equipment Purchase

•   Bio-rad Twitter
•   Bio-rad Facebook
•   Bio-rad LinkedIn

Key Considerations for Building a Business Case for Purchasing Capital Equipment

The process of scaling up laboratory capacity, replacing old equipment, or purchasing new technology to help accelerate your team’s objectives must be accompanied by carefully evaluating the overall costs involved. But how should you determine whether a capital equipment purchase is the best option for your team, and how do you ensure your business case gives you the highest chance of success for approval? This article explores the key factors to consider when building a business case for capital equipment purchases, according to feedback from procurement leaders with a combined 30+ years of experience in the field.

Continue Reading

Share a little information with us to view this article in its entirety.

Content you'll also find interesting

Are Costly Experimental Failures Causing a Reproducibility Crisis?

How to Incorporate Automation into Your Flow Cytometry Workflows

Mitigating Risks When Adopting a New Technology

Thank you for submitting the form.

When is Capital Equipment Purchase Needed?

The purchase of capital equipment significantly differs from the recurrent purchase of consumable materials and relatively low-cost equipment (e.g., a pH meter) that typically utilizes an operational budget. Instead, capital equipment is purchased through a department’s capital expenditure (CapEx) budget. Capital equipment can be described as a high-cost, fixed assets to be capitalized and depreciated over the equipment’s lifecycle (e.g., confocal microscope). In broad terms, a capital purchase can either satisfy a team's current needs or help meet new research or business objectives.

"When considering day-to-day business operations, two factors could determine a case for capital purchase: obsolescence and capacity. Is there a need to replace or update your existing base? Are you expanding your business? Alternatively, the business may be changing. Are you looking at new technology that will help drive a specific strategy for your department or division? Any of these situations would highlight a need for capital equipment purchase." — Robert Jerzewski, PhD, former Director of Equipment Commissioning and Qualification at Bristol-Myers Squibb

Using laboratory capacity as an example, the available equipment should be able to satisfy current project needs while considering headcount. However, if a laboratory is expanding or relocating into a larger space, capacity also increases, and a capital equipment purchase will be needed to ensure existing workflows continue running smoothly. In addition to capacity, different equipment involved in a single workflow must be compatible with each other and the relevant software. If the software is no longer supported by a department’s IT service or the manufacturer, that instrument becomes obsolete and will have to be replaced with a new model through the capital purchase process. Alternatively, team objectives may change by offering a new service, branching into a new market, or switching research fields. In this case, it is likely that needs cannot be met using existing equipment alone, and new technologies must be introduced.

Building a Business Case

All business cases for capital equipment purchase, regardless of the instrument in question or template being used, follow the same format and include three key sections: an executive summary, a situational analysis, and financial justification.

• Executive summary : a contextual introduction outlining the problem, proposing a solution, and stating the predicted results and benefits of the purchase
• Situational analysis : a more detailed review of the issue, supported by financial data and highlighting where the new instrument would have an impact. This should also include a discussion of potential risks to the proposed solutions and the alternatives available, such as upgrading the current technology
• Financial justification section : covers all the costs associated with the purchase, including installation and maintenance costs, as well as the predicted financial benefits and forecasted income and budgets associated with the new instrument

What to Consider During the Justification Process

When completing the justification documentation, it is important to consider the views and priorities of all individuals involved in the CapEx management and include expert input from laboratory personnel who will be using the new instrument. A decision matrix displaying the requirements and limitations of each individual or group involved in decision-making can be a useful tool to balance viewpoints, stay on budget, and ultimately support the business case for the best-suited supplier or equipment for the team.

Initially, direct users should confirm which technical specifications they require and pull together an executive summary focusing on instrument capabilities, quality, and additional supplier-provided services, such as maintenance plans. Those who will use the equipment are best suited to identify where new instrumentation is needed and research potential solutions. Various research teams within the same organization may require the use of the same instrument. For example, an HPLC instrument may be utilized by R&D, QC, QA, external projects, and internal testing teams. All these parties will have the same requirements for an instrument but demonstrating a piece of equipment’s multifunctionality will further support the business case.

Departmental leadership teams and procurement leaders will be focused on the financial side of the business case, taking into consideration all the additional organizational expenses and overall CapEx and operational budgets. In addition, facilities management and health and safety teams will inform on the installation and setup stages and compatibility with existing infrastructure.

Tallying Up the Costs

When putting together a business case for capital equipment purchase, a major consideration is the cost associated with the new equipment, not just in procurement but overall costs throughout its lifecycle.

"When building the business case, the technology and price are both important criteria. For both, it includes the equipment and services. I would always consider the total cost of ownership, including the price of the instrument and its upkeep." — Vice President, Head of Capital Investment at Pharma Company

The total cost of ownership includes the following:

• Purchasing : the initial cost of buying a new instrument, along with delivery. When scheduling delivery, it is also important to evaluate the options available. Site location and access will play into this and may incur additional costs
• Installation : does the instrument need to be installed or built into a lab, and can this be done in-house by facility management teams, rather than a specialist engineer from the manufacturer?
• Set up : can the new instrument be connected and integrated into existing systems and software by the user, or will this require a specialist engineer?
• Compatibility : is the new device compatible with the software currently used in the laboratory, or will the whole system require updating or replacing? Can current disposable materials be used with the new equipment?
• Insurance : most equipment will come with a form of warranty, but will it also require insurance? If so, does the manufacturer offer an insurance plan, or can the instrument be listed under the client’s existing insurance policy?
• Ongoing maintenance : some suppliers offer a maintenance plan with regular check-ups and ongoing support, while others simply provide a call-out service in case of emergencies. Each of these plans comes with a cost, dependent on the level of coverage and support. For most teams, the maintenance cost will come from the operational budget. If that budget is not increasing, maintaining the equipment may not be possible

A thorough business case should encompass the overall cost of ownership throughout the equipment lifecycle, views of all relevant stakeholders, and a comprehensive demonstration of how the particular instrument is the optimal choice for a specific laboratory. Incorporating each of these elements, alongside supporting evidence, is the best way to ensure your justification documentation is compliant and, therefore, most likely to be successful.

BIO-RAD is a trademark of Bio-Rad Laboratories, Inc. All trademarks used herein are the property of their respective owner. ©  2023 Bio-Rad Laboratories, Inc

Recommended Features

How Field Application Scientists Smooth Research Journeys

Read this first hand perspective highlighting how scientists are supported by Bio-Rad field application scientists.

Purchasing Equipment for a New Lab

Follow this comprehensive infographic which outlines eight practical steps and considerations to keep in mind when buying lab equipment for a new lab.

Advancing Scientific Discovery: Bio-Rad Tools Featured in Influential Publications

Learn how Bio-Rad instrumentation has been supporting researchers like you in your mission to improve health. Read this synposis of key publications.

These pages list our product offerings in these areas. Some products have limited regional availability. If you have a specific question about products available in your area, please contact your local sales office or representative .

•   Bio-rad LinkedIn   Bio-rad Antibodies LinkedIn
•   Bio-rad YouTube   Bio-rad Antibodies YouTube
•   Bio-rad Twitter   Bio-rad Antibodies Twitter
•   Bio-rad Facebook   Bio-rad Antibodies Facebook
•   Bio-rad Instagram
•   Bio-rad Pinterest

About Bio-Rad

Bioradiations, sustainability, investor relations.

• Search Search Please fill out this field.

What Is Capital Investment?

• How It Works

Capital Investments for Business

• Advantages and Disadvantages

Accounting for Capital Investments

The bottom line.

• Investing Basics

Capital Investment: Types, Example, and How It Works

Capital investment is the acquisition of physical assets by a company for use in furthering its long-term business goals and objectives. Real estate, manufacturing plants, and machinery are among the assets that are purchased as capital investments.

The capital used may come from a wide range of sources from traditional bank loans to venture capital deals.

Key Takeaways

• Capital investment is the expenditure of money to fund a company's long-term growth.
• The term often refers to a company's acquisition of permanent fixed assets such as real estate and equipment.
• Capital assets are reported as non-current assets and most are depreciated.
• The funds for capital investment can come from a number of sources, including cash on hand, though big projects are most often financed through obtaining loans or issuing stock.
• Examples of capital investments are land, buildings, machinery, equipment, or software.

Investopedia / Theresa Chiechi

How Capital Investment Works

Capital investment is a broad term that can be defined in two distinct ways:

• An individual, a venture capital group or a financial institution may make a capital investment in a business. The money can be provided as a loan or a share of the profits down the road. In this sense of the word, capital means cash.
• The executives of a company may make a capital investment in the business. They buy long-term assets such as equipment that will help the company run more efficiently or grow faster. In this sense, capital means physical assets.

In either case, the money for capital investment must come from somewhere. A new company might seek capital investment from any number of sources, including venture capital firms, angel investors , or traditional financial institutions. When a new company goes public, it is acquiring capital investment on a large scale from many investors.

An established company might make a capital investment using its own cash reserves or seek a loan from a bank. It might issue bonds or stock shares in order to finance capital investment. There is no minimum or maximum capital investment. It can range from less than $100,000 in seed financing for a start-up to hundreds of millions of dollars for massive projects undertaken by companies in capital-intensive sectors such as mining, utilities, and infrastructure.

Capital investment is meant to benefit a company in the long run, but it nonetheless can have short-term downsides.

A decision by a business to make a capital investment is a long-term growth strategy. A company plans and implements capital investments in order to ensure future growth. Capital investments generally are made to increase operational capacity, capture a larger share of the market, and generate more revenue. The company may make a capital investment in the form of an equity stake in another company's complementary operations for the same purposes.

In many cases, capital investments are a necessary and normal part of an industry. Consider an oil-drilling company that relies on heavy machinery to extract raw materials to be processed. As opposed to a law firm that will have low-to-no capital investment requirements, capital-intensive businesses usually need specific assets in order to operate.

In addition, there are strategic components for a business to consider when deciding whether or not to invest in a capital asset. For instance, consider how certain heavy machinery such as a company vehicle could be leased. Should the company be willing to incur debt and tie up capital, the company may spend less money in the long-term by incurring a capital investment as opposed to a periodic "rental" expense.

Types of Capital Investments

Companies often acquire capital investments for diversification, modernization, or business expansion. This may mean buying capital investments different from existing aspects of its business or capital investments that simply do things better than before. Some specific types of capital investments include:

• Land: Companies may buy bare land to be used for development or expansion.
• Buildings: Companies may buy existing buildings for manufacturing, storage, production, or headquarter operations.
• Assets Under Development: Companies may incur spending over time to assemble assets that may be capitalized. For example, a company can build its own building; the accumulation of charges may be considered a capital investment.
• Furniture and Fixtures: Though furniture and fixtures may be more temporary in nature, certain aspects of accounting rules result in some overlap between FFE and capital investments.
• Machines: Companies that invest in the production elements of making goods are making capital investments.
• Software Development or Computing Devices: Companies more frequently invest capital to build software; these costs now commonly qualify for capitalization and amortization over time.

Because land does not deteriorate in a similar manner compared to other capital investments, it is not depreciated.

Advantages and Disadvantages of Capital Investments

Pros of capital investments.

The advantages of capital investments can vary depending on the specific situation. However, most companies embark on capital investments for productivity.  By investing in new equipment or technology, companies can improve their efficiency, thus lower costs and increasing output. These types of investments may also improve the quality of goods produced.

Capital investments can also lead to cost savings over time. For example, a new piece of equipment may be more energy-efficient than an older model, which can result in lower utility bills. Similarly, new technology may streamline processes and reduce the need for manual labor. Last, companies may decide the long-term discounted cash flow is favorable when comparing the upfront investment of a capital investment compared to the long-term, ongoing cash outlay of a recurring expense.

By investing in their long-term assets, companies can also gain a competitive advantage in the market. This can make it more difficult for competitors to catch up and can help the company to maintain its market position over the long term. If a company is willing to take a risk and incur a large investment to strengthen its business, this may create a barrier to entry that competitors can not overcome or compete against.

Cons of Capital Investment

The preferred option for capital investment is always a company's own operating cash flow, but that may not be sufficient to cover the anticipated costs. It is more likely the company will resort to outside financing. Therefore, there is usually a little more risk to capital investments. This is especially true for capital investments that are customized or hard to liquidate; once the company has bought the capital investment, it may be hard to exit the investment.

Capital investment is meant to benefit a company in the long run, but it nonetheless can have short-term downsides. Capital investments tends to reduce earnings growth in the short term, and that never pleases stockholders of a public company. This may be especially true for capital investments that also incur operating costs (i.e. the acquisition of land will be accompanied by a potentially hefty annual property tax assessment).

In addition, if a company does not have sufficient capital on hand to make a large investment, there are downsides to each of its financing options. Issuing additional stock shares, which is often the funding option for public companies, dilutes the value of its outstanding shares. Existing shareholders generally dislike finding that their stake in the company has been reduced. Alternatively, the total amount of debt a company has on the books is closely watched by stockholders and analysts . The payments on that debt can stifle the company's further growth.

May increase productivity if capital investment is more efficient than prior methods

May result in higher quality manufactured goods

May be cheaper in the long-run when compared against rented or monthly expensed solutions

May create a barrier to entry that yields a competitive advantage

May be too expensive for the company to outright purchase on their own.

May limit or restrict short-term profitability of the company

May be accompanied by additional operating expenses

May reduce the liquidity of the company should it be difficult to sell the capital asset

Accounting practices for capital investments involve recording the cost of the asset, allocating the cost over its useful life, and carrying the investment as the difference between cost and accumulated depreciation . The accounting treatment can vary depending on the type of asset, as land is not depreciated but many other capital investments are depreciated.

The cost of the asset should be recorded in the company's accounting records. This can include the purchase price of the asset as well as any additional costs related to the purchase such as installation or transportation costs. Companies may record the fair market value for certain capital investments under certain circumstances, but capital investments must initially be recorded at cost.

If the asset has a cost that meets the company's capitalization policy, the cost of the asset will be recorded as a capital asset on the balance sheet. This allows the company to spread the cost of the asset over its useful life and to recognize the expense over time. This is the primary difference between the assets mentioned earlier and normal operating costs, as operating costs are expensed in the period they are incurred while capital investment costs are spread over time.

The useful life of a capital investment is an estimate of the number of years that the asset will be used by the company. The depreciation method used will depend on the asset and the company's accounting policies, but commonly used methods include straight-line, declining balance, and sum-of-the-years'-digits. Companies may also record impairments to reduce the value of a capital investment should a loss be incurred. In addition, whereas operating expenses may simply be stopped, companies have a series of entries to post when a capital investment is disposed of.

Example of Capital Investment

As part of its year-end financial statements, Amazon.com reported the following assets it owned for fiscal year 2021 and 2022.

This format of the balance sheet is standard where assets are reported by liquidity starting with the most liquid assets. Because capital investments are not liquid, they are often reported lower in the list.

At year-end 2022, Amazon reported a net asset balance of $186.7 billion for property and equipment. This figure is net because capital investments, aside from land, are often depreciated and reported as their cost less any accumulated depreciation. Note that this $186.7 billion is also being excluded from current assets. Because of the long-term nature of capital investments, they are reported as noncurrent assets.

What Is an Example of a Capital Investment?

When a company buys land, that is often a capital investment. Because of the long-term nature of buying land and the illiquidity of the asset, a company usually needs to raise a lot of capital to buy the asset.

How Does a Capital Investment Work?

A capital investment works based on the benefits a company may receive over a long period of time compared to the short-term investment. In theory, a company will pay a large sum of money upfront (or over time). Then, the company will receive a benefit from the asset (potentially even after it has finished paying for it). The idea is a capital investment should provide better long-term value compared to a good or service that is being purchased and used in a single accounting period.

What Is the Largest Downside to a Capital Investment?

Companies must often make a long-term financial or legal commitment when buying capital investments. This means tying up cash, getting rid of flexibility, and taking a risk that may not pan out. Whereas a company can be more nimble by paying for something smaller, a company aims to leverage a single investment to scale growth or innovate. That growth or innovation may not materialize.

Companies may decide to make capital investments as a way to innovate, modernize, and capture a competitive advantage over its competitors. This investment often requires a large sum of money, and the company often receives an illiquid asset such as land, buildings, machinery, or equipment. The accounting treatment for capital investments if often different than operating outlays as capital investments are usually depreciated.

Amazon. " Form 10-K (2022) ."

• Terms of Service
• Editorial Policy
• Privacy Policy
• Your Privacy Choices

• Capital Planning

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on July 12, 2023

Get Any Financial Question Answered

Table of contents, what is capital planning.

Capital planning is a critical process that businesses undertake to allocate financial resources to long-term investments and projects, such as acquiring new equipment, launching new products, or expanding operations.

The primary aim of capital planning is to ensure that a company's investments generate the highest possible return, contribute to its long-term growth and success, and minimize financial risks.

A well-designed capital plan can help a company identify the most beneficial investment opportunities, create a balanced portfolio of projects, and allocate resources strategically.

Effective capital planning is crucial for a business's long-term success and financial stability.

It allows organizations to make strategic decisions about where to invest resources to achieve their growth objectives, maximize shareholder value, and maintain a competitive edge in the marketplace.

By carefully evaluating potential investments, companies can ensure that they are putting their money into projects that align with their overall strategy and have the potential to deliver significant returns.

Furthermore, capital planning helps businesses minimize investment risks by identifying potential threats and developing strategies to mitigate them.

Capital Planning Process

Identifying capital needs.

This step involves assessing a company’s current assets , forecasting future growth, and analyzing industry trends.

It includes evaluating the organization's existing infrastructure, equipment, and technology to determine if they are adequate to meet its short and long-term objectives.

Additionally, companies should assess their growth potential by analyzing market trends, customer demand, and competition to identify areas where investment may be required.

Forecasting future growth is critical to identifying capital needs, as it provides valuable insights into the company's potential revenue streams and resource requirements.

Companies should utilize historical data, market research, and industry analysis to create accurate growth projections.

Understanding industry trends is essential for identifying opportunities for investment and potential challenges that may impact the organization's financial performance.

Evaluating Capital Projects

Evaluating a company’s potential capital projects is done to determine their financial feasibility, strategic alignment, and associated risks. Financial feasibility refers to the project's ability to generate a return on investment (ROI) that exceeds its cost of capital .

This can be assessed using various capital budgeting techniques , such as net present value (NPV) , internal rate of return (IRR) , and payback period.

Strategic alignment is essential in the evaluation process, as it ensures that the proposed project aligns with the company's overall business strategy and objectives.

This may involve analyzing the project's potential impact on market share , competitive positioning, and long-term growth potential.

Risk assessment is another critical aspect of project evaluation, as it involves identifying potential risks associated with the investment and developing strategies to mitigate them.

Prioritizing Capital Investments

This involves ranking projects according to their potential for financial return, considering factors such as projected cash flows, payback period, and NPV. Balancing risk and reward is also a critical aspect of prioritizing investments.

Companies should aim to create a balanced portfolio of projects that offers an optimal mix of potential returns and risk exposure.

Resource availability is another important factor to consider when prioritizing capital investments.

Companies must ensure they have the financial, human, and technological resources to support the successful implementation of their chosen projects. This may require reallocating resources from other business areas or seeking external financing to fund the investment.

Budgeting Techniques for Capital Planning

Payback period.

The payback period is a simple capital budgeting technique that calculates the amount of time it takes for an investment to recoup its initial cost through cash inflows.

It is calculated by dividing the initial investment cost by the annual cash inflow generated by the project.

The payback period is useful for comparing investment options with similar risk profiles , as it provides a straightforward measure of how quickly an investment will start generating positive returns.

However, the payback period must account for the time value of money or cash flows generated after the initial investment has been recouped, which may limit its usefulness in evaluating long-term projects.

Net Present Value

NPV is a more sophisticated capital budgeting technique that accounts for the time value of money by discounting future cash flows to their present value.

The NPV is calculated by subtracting the present value of cash outflows (initial investment) from the present value of cash inflows generated by the project over its life.

A positive NPV indicates that the project is expected to generate a return greater than the cost of capital, making it a potentially worthwhile investment.

In contrast, a negative NPV suggests that the project's returns are unlikely to cover its costs. NPV is widely used by businesses to compare investment opportunities and determine their financial viability.

Internal Rate of Return

The IRR calculates the discount rate at which the net present value of a project's cash flows becomes zero. In other words, the IRR represents the annualized rate of return at which the investment breaks even.

The IRR can be used to compare the profitability of different investment options, with higher IRRs generally indicating more attractive opportunities.

It is important to note that the IRR assumes that all future cash flows are reinvested at the same rate, which may only sometimes be the case in practice.

Profitability Index (PI)

The profitability index measures the relative profitability of an investment by dividing the present value of its future cash flows by the initial investment cost.

A PI greater than 1 indicates that the project is expected to generate a positive net present value. In contrast, a PI of less than 1 suggests that the investment may not be financially viable.

The PI is useful for comparing the relative profitability of different investment options, as it takes into account both the size of the investment and the potential returns.

Modified Internal Rate of Return (MIRR)

The modified internal rate of return (MIRR) is a variation of the IRR that addresses some of its limitations by considering the cost of capital and the reinvestment rate of cash flows separately.

The MIRR calculates the annualized rate of return at which the present value of a project's cash inflows, discounted at the reinvestment rate, equals the present value of its cash outflows, discounted at the cost of capital.

The MIRR provides a more realistic measure of a project's profitability, accounting for the actual reinvestment opportunities available to the company.

Risk Management in Capital Planning

Risk identification and assessment.

Risk management is a critical aspect of capital planning, as it helps businesses identify and assess potential risks associated with their investments.

This involves analyzing various factors, such as market conditions, economic trends, competitive dynamics, and regulatory developments, to determine the likelihood and potential impact of various risks on the company's financial performance.

Risk assessment should be an ongoing process, as new risks may emerge over time, or existing risks may change in magnitude or probability.

Risk Mitigation Strategies

Once risks have been identified and assessed, businesses should develop strategies to mitigate their potential impact on capital investments. This can involve a range of approaches, such as diversification, hedging , and insurance.

Diversification is spreading investments across a range of projects or asset classes to reduce the portfolio's overall risk exposure. Hedging involves using financial instruments, such as options or futures contracts , to offset potential losses from an investment.

Insurance can be used to transfer certain types of risk to a third party, such as property and casualty insurers or credit risk insurers, in exchange for a premium.

Contingency Planning

Contingency planning is an essential component of risk management. It involves developing alternative plans or strategies to address potential risks that may materialize during a capital investment.

This can include identifying backup suppliers or contractors, establishing alternative financing arrangements, or developing plans to scale back or modify the project if necessary.

Contingency planning helps businesses to be better prepared for unexpected events and to minimize the potential impact of risks on their capital investments.

Capital Planning Best Practices

Involving stakeholders.

One of the best practices in capital planning is involving all relevant stakeholders in the process. This includes the company's management and financial teams and employees, shareholders, customers, and suppliers.

By engaging stakeholders in the planning process, businesses can gain valuable insights, identify potential risks and opportunities, and build a shared understanding of the company's strategic objectives and investment priorities.

Aligning With Overall Business Strategy

Capital planning should be closely aligned with a company's overall business strategy, ensuring investments are directed toward projects supporting the organization's long-term goals and objectives.

To achieve this alignment, businesses should regularly review and update their strategic plans and ensure that capital planning is integral to their strategic decision-making process.

Regularly Reviewing and Updating the Plan

Capital planning is an ongoing process that requires regular review and updating to reflect changes in the company's financial position, market conditions, and strategic priorities.

By periodically revisiting their capital plan, businesses can ensure that their investment decisions remain aligned with their objectives, respond to new opportunities or risks, and adapt to changing circumstances.

Ensuring Transparency and Accountability

Transparency and accountability are essential for effective capital planning, as they help build trust among stakeholders and ensure that investment decisions are made in the company's best interests.

Businesses should establish clear processes for evaluating and prioritizing capital projects, involve stakeholders in decision-making, and regularly report on the progress and outcomes of their investments.

Capital planning is an essential process that drives a company's long-term growth and financial success.

It involves identifying capital needs by assessing current assets and forecasting future growth, evaluating potential investments using capital budgeting techniques like NPV and IRR, and prioritizing projects based on expected returns , risks, and resource availability.

Effective capital planning also incorporates risk management strategies, such as risk identification, mitigation, and contingency planning, to minimize potential investment threats.

Adhering to best practices, such as involving stakeholders, aligning capital planning with overall business strategy, regularly reviewing and updating plans, and ensuring transparency and accountability, further enhances the effectiveness of capital planning.

By adopting a comprehensive and strategic approach to capital planning, businesses can maximize shareholder value and secure long-term success in a competitive market.

Capital Planning FAQs

What is capital planning.

Capital planning is the process of determining how an organization will allocate and invest its financial resources to fund long-term projects, acquisitions, or expansions.

Why is capital planning important?

Capital planning is essential because it helps organizations prioritize and make informed decisions about allocating funds to projects that will generate the most significant returns or strategic advantages.

How does capital planning support financial stability?

Capital planning helps organizations maintain financial stability by ensuring that sufficient funds are available for strategic investments, managing debt and equity ratios, and minimizing the risk of financial distress.

What role does risk assessment play in capital planning?

Risk assessment is a crucial component of capital planning as it helps identify potential risks associated with investment projects. By evaluating risks, organizations can make informed decisions, develop mitigation strategies, and allocate resources more effectively.

How often should capital planning be reviewed and updated?

Capital planning should be reviewed and updated regularly to account for changes in market conditions, business priorities, and financial goals. Typically, organizations conduct annual or periodic reviews to ensure the relevance and accuracy of their capital plans.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

Related Topics

• Business Continuity Planning (BCP)
• Business Exit Strategies
• Business-to-Business (B2B)
• Business-to-Consumer (B2C)
• Change-In-Control Agreements
• Corporate Giving Programs
• Corporate Philanthropy
• Cross-Purchase Agreements
• Crowdfunding Platforms
• Employee Retention and Compensation Planning
• Employee Volunteer Programs (EVPs)
• Endorsement & Sponsorship Management
• Enterprise Resource Planning (ERP)
• Entity-Purchase Agreements
• Equity Crowdfunding
• Family Business Continuity
• Family Business Governance
• Family Business Transition Planning
• Family Limited Partnerships (FLPs) and Buy-Sell Agreements
• Human Resource Planning (HRP)
• Jumpstart Our Business Startups (JOBS) Act
• Request for Information (RFI)
• Request for Proposal (RFP)
• Revenue Sharing
• SEC Regulation D
• Sale of Business Contract
• Security Token Offerings (STOs)
• Shareholder Engagement and Proxy Voting
• Social Engagements

Ask a Financial Professional Any Question

Meet top certified financial advisors near you, find advisor near you, our recommended advisors.

Taylor Kovar, CFP®

WHY WE RECOMMEND:

Fee-Only Financial Advisor Show explanation

Certified financial planner™, 3x investopedia top 100 advisor, author of the 5 money personalities & keynote speaker.

IDEAL CLIENTS:

Business Owners, Executives & Medical Professionals

Strategic Planning, Alternative Investments, Stock Options & Wealth Preservation

Claudia Valladares

Bilingual in english / spanish, founder of wisedollarmom.com, quoted in gobanking rates, yahoo finance & forbes.

Retirees, Immigrants & Sudden Wealth / Inheritance

Retirement Planning, Personal finance, Goals-based Planning & Community Impact

We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it.

Fact Checked

At Finance Strategists, we partner with financial experts to ensure the accuracy of our financial content.

Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications.

They regularly contribute to top tier financial publications, such as The Wall Street Journal, U.S. News & World Report, Reuters, Morning Star, Yahoo Finance, Bloomberg, Marketwatch, Investopedia, TheStreet.com, Motley Fool, CNBC, and many others.

This team of experts helps Finance Strategists maintain the highest level of accuracy and professionalism possible.

Why You Can Trust Finance Strategists

Finance Strategists is a leading financial education organization that connects people with financial professionals, priding itself on providing accurate and reliable financial information to millions of readers each year.

We follow strict ethical journalism practices, which includes presenting unbiased information and citing reliable, attributed resources.

Our goal is to deliver the most understandable and comprehensive explanations of financial topics using simple writing complemented by helpful graphics and animation videos.

Our writing and editorial staff are a team of experts holding advanced financial designations and have written for most major financial media publications. Our work has been directly cited by organizations including Entrepreneur, Business Insider, Investopedia, Forbes, CNBC, and many others.

Our mission is to empower readers with the most factual and reliable financial information possible to help them make informed decisions for their individual needs.

How It Works

Step 1 of 3, ask any financial question.

Ask a question about your financial situation providing as much detail as possible. Your information is kept secure and not shared unless you specify.

Step 2 of 3

Our team will connect you with a vetted, trusted professional.

Someone on our team will connect you with a financial professional in our network holding the correct designation and expertise.

Step 3 of 3

Get your questions answered and book a free call if necessary.

A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation.

Where Should We Send Your Answer?

Just a Few More Details

We need just a bit more info from you to direct your question to the right person.

Tell Us More About Yourself

Is there any other context you can provide.

Pro tip: Professionals are more likely to answer questions when background and context is given. The more details you provide, the faster and more thorough reply you'll receive.

What is your age?

Are you married, do you own your home.

• Owned outright
• Owned with a mortgage

Do you have any children under 18?

• Yes, 3 or more

What is the approximate value of your cash savings and other investments?

• $50k - $250k
• $250k - $1m

Pro tip: A portfolio often becomes more complicated when it has more investable assets. Please answer this question to help us connect you with the right professional.

Would you prefer to work with a financial professional remotely or in-person?

• I would prefer remote (video call, etc.)
• I would prefer in-person
• I don't mind, either are fine

What's your zip code?

• I'm not in the U.S.

Submit to get your question answered.

A financial professional will be in touch to help you shortly.

Part 1: Tell Us More About Yourself

Do you own a business, which activity is most important to you during retirement.

• Giving back / charity
• Spending time with family and friends
• Pursuing hobbies

Part 2: Your Current Nest Egg

Part 3: confidence going into retirement, how comfortable are you with investing.

• Very comfortable
• Somewhat comfortable
• Not comfortable at all

How confident are you in your long term financial plan?

• Very confident
• Somewhat confident
• Not confident / I don't have a plan

What is your risk tolerance?

How much are you saving for retirement each month.

• None currently
• Minimal: $50 - $200
• Steady Saver: $200 - $500
• Serious Planner: $500 - $1,000
• Aggressive Saver: $1,000+

How much will you need each month during retirement?

• Bare Necessities: $1,500 - $2,500
• Moderate Comfort: $2,500 - $3,500
• Comfortable Lifestyle: $3,500 - $5,500
• Affluent Living: $5,500 - $8,000
• Luxury Lifestyle: $8,000+

Part 4: Getting Your Retirement Ready

What is your current financial priority.

• Getting out of debt
• Growing my wealth
• Protecting my wealth

Do you already work with a financial advisor?

Which of these is most important for your financial advisor to have.

• Tax planning expertise
• Investment management expertise
• Estate planning expertise
• None of the above

Where should we send your answer?

Submit to get your retirement-readiness report., get in touch with, great the financial professional will get back to you soon., where should we send the downloadable file, great hit “submit” and an advisor will send you the guide shortly., create a free account and ask any financial question, learn at your own pace with our free courses.

Take self-paced courses to master the fundamentals of finance and connect with like-minded individuals.

Get Started

Hey, did we answer your financial question.

We want to make sure that all of our readers get their questions answered.

Great, Want to Test Your Knowledge of This Lesson?

Create an Account to Test Your Knowledge of This Topic and Thousands of Others.

Get Your Question Answered by a Financial Professional

Create a free account and submit your question. We'll make sure a financial professional gets back to you shortly.

What is Capital Equipment?

Home › Accounting › Assets › What is Capital Equipment?

Definition:  Capital equipment is a good with a useful life of longer than 1 year used in the productive operations of a company. It is an investment made by a company to carry on or support its manufacturing activities.

• What Does Capital Equipment Mean?

Capital equipments are physical items acquired for a productive activity. Companies are frequently investing in these items to expand their operations or to keep up with new techniques or technological advances. From an accounting perspective they are normally recorded as fixed assets, but in order to be classified as such, according to U.S. accounting rules, they must worth more than $5,000 and have an expected life spam of more than 1 year. Some industries spend much more than others when it comes to capital equipment.

Capital intensive businesses such as airlines are an example of this, since most of its business comes from the operation of aircrafts (equipments) the level of capital equipment investments is frequently higher than other industries. On the other hand, manufacturing businesses are also more capital intensive than service businesses. An example of these items would be machinery, trucks, lifting systems, inventory transportation equipment or warehouse racks, among others.

Plastic Pipes Co. is a company that manufactures water pipes for the construction and domestic market. Currently, the company’s Board of Directors is reviewing next year’s investment plan. The plan contemplates a total investment of $5,400,000 that will be divided between the following programs: $1,400,000 for the construction of a new building, $2,000,000 for capital equipment, $1,500,000 for stock investments and $500,000 for new cafeteria facilities for employees.

The capital equipment investment contemplates the acquisition of new machinery to set up 3 new lines of productions, the purchase of new packaging equipments and a modernization of the raw material warehouse. The company expects that this investment program increases its earnings per share by 50% for the next fiscal year.

Accounting & CPA Exam Expert

Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching. After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career.

• Personal Finance
• Managing Wealth
• Small Business
• Corporate & Institutional
• Our Commitments
• Explore Products & Solutions
• Gain Market Insight
• Industry Insights

Benefits of CapEx Equipment Financing

Equipment plays an important role in a company's success, and capital expenditure (CapEx) financing can help control infrastructure costs, optimize working capital, and harness tax benefits. CapEx financing of equipment also provides companies with the option to record investment costs on their balance sheet rather than expense them directly. 

Recent updates to tax policy have left many companies wondering about the changing benefits of CapEx financing and the impact those changes could have on company planning in 2024 and beyond. 

CapEx Financing Options 

Some companies purchase equipment using cash, their existing bank line of credit, or a traditional term loan. CapEx financing, however, gives borrowers other options for structuring purchases. These options include:

• Loans with balloon payments , to facilitate the deferment of purchase costs.
• Loans with interest-only periods, which can provide for low initial payments. This can be particularly useful for businesses with limited cash flow or tight budgets.
• 100% financing, which can eliminate down payments on equipment purchases.

If the financed CapEx purchases significantly increase the asset's value, financing can improve the loan-to-value ratio — potentially unlocking more favorable terms.

Benefits of Equipment Leasing

Maximizing the availability of working capital and maintaining healthy cash flow are critical when it comes to CapEx financing. Many businesses prefer equipment leasing over ownership, as it allows them to obtain the equipment they need within tight budgetary parameters. Fixed-rate leases, for example, can be structured with flexible payment options that lower borrowing costs compared to conventional loans. With pre-determined terms and interest rates, fixed-rate leases also can help to preserve working capital and improve credit utilization. These leases provide predictable costs and stability, allowing businesses to concentrate on core operations.

Using a lease to fully fund equipment also can free up cash for strategic reinvestment in other areas, such as research and development, marketing, or technology. The use and allocation of tax benefits — including expensing and deprecation — are additional benefits of equipment leasing.

Leasing provides a viable alternative to locking up capital in a new equipment purchase. The finance provider invests in the depreciating asset, offering cash flow and budget flexibility for the lessee to invest in other activities, with potentially higher returns.  

Tax-Related Considerations

Tax benefits are another reason companies embrace CapEx equipment financing. However, two of the tax benefits enacted as part of the Tax Cuts and Jobs Act (TCJA) of 2017 are being phased out:

• Full Expensing : Beginning in 2023, the ability to fully expense and deduct 100% of the cost of qualifying equipment immediately was  reduced to 80% . The remaining deductions are now set to phase out each year, decreasing by 20% per year over the next three years.
• Bonus Depreciation Sunset : The tax benefit that allowed for 100% bonus depreciation for specific new and used equipment is also being phased out. It dropped to 80% in 2023, and is scheduled to go to 60% in 2024, 40% in 2025, 20% in 2026 and finally zero in 2027.

While two of the TCJA benefits are ending, three other important aspects remain unchanged, as of January 2024: 

• Section 179 Expensing : TCJA  increased the maximum deduction  for qualified assets to $1 million, and increased the phase-out threshold to $2.5 million.
• Interest Deduction Limitation : TCJA limited the business interest deduction for expenses related to equipment financing to 30% of taxable income. 
• R&D Expense Deduction : The ability to fully deduct research & development expenses in the year incurred was also eliminated by the TCJA. This change took effect in 2022 , requiring R&D costs to be amortized over five years.

In addition to benefits offered through the TCJA, the Inflation Reduction Act (IRA) of 2022 added new support for equipment financing. Specifically, the IRA includes tax credits and incentives for the financing of clean energy equipment, such as solar panels and energy-efficient machinery. It also allocates billions of dollars to loan-guarantee programs supporting clean energy projects. 

The IRA also allows for accelerated depreciation deductions for certain clean energy equipment, reducing taxable income and improving cash flow for businesses investing in qualifying equipment.

Choosing the Right Partner

Equipment financing solutions for new equipment and existing assets can have a positive impact on cash flow and liquidity. In today's dynamic market, CapEx equipment financing can be invaluable in improving a company’s return on investment.

Visit pnc.com/ef or contact us to learn how an experienced lender who understands CapEx financing can help with your equipment financing needs.

https://www.fitchratings.com/research/corporate-finance/tax-changes-to-compound-pressures-for-highly-levered-us-corporates-27-01-2023

https://tax.thomsonreuters.com/en/glossary/bonus-depreciation

https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-a-comparison-for-businesses#:~:text=TCJA%20increased%20the%20maximum%20deduction,made%20to%20nonresidential%20real%20property

https://pro.bloombergtax.com/brief/rd-tax-credit-and-deducting-rd-expenditures/

https://www.energy.gov/lpo/inflation-reduction-act-2022

Explore our Equipment Finance options.

Take the next step today and

get the financing you need for tomorrow.

Important Legal Disclosures and Information

The article you read was prepared for general information purposes only and is not intended as legal, tax or accounting advice or as recommendations to engage in any specific transaction, including with respect to any securities of PNC, and do not purport to be comprehensive. Under no circumstances should any information contained in this article be used or considered as an offer or commitment, or a solicitation of an offer or commitment, to participate in any particular transaction or strategy. Any reliance upon any such information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Neither PNC Bank, N.A., nor any other subsidiary of The PNC Financial Services Group, Inc. will be responsible for any consequences of reliance upon any opinion or statement contained here, or any omission. The opinions expressed in this article are not necessarily the opinions of PNC Bank or any of its affiliates, directors, officers or employees.

PNC General Disclosure https://www.pnc.com/en/corporate-and-institutional/pnc-general-disclosure.html

6 Key Steps of the Capital Purchasing Journey for Equipment

Jul 27, 2022

With such a big decision to be made, we’ve developed six key steps to help you make informed choices during the capital equipment purchasing journey. Following our key steps in the capital purchasing process can assist you in making a more informed decision about the type of equipment you add to your roster.

1.    Plan Ahead

Before you begin the process of researching, selecting, and purchasing capital equipment, you should be prepared with a plan. This will help determine the important factors you want to consider while choosing the appropriate equipment. Creating this plan includes understanding several aspects of your business:

• Your needs: What are they? What equipment will help you achieve them?
• Your budget: how much can you spend on a capital purchase? How much is allocated in the budget for this decision?
• Company growth plans: where will this equipment take your company in the future? What changes or goals do you anticipate for your business with this purchase, and how can it help you succeed?

2.    Test the Equipment

If you are able, take advantage of manufacturer events like conventions or trade shows where equipment is on display. On-site demos are also possible in many suppliers’ facilities. See how the equipment works and looks to understand how it will suit your business.

If you are not able to see the equipment in person, find manufacturers who post videos of their equipment online, like RAS Systems’ videos of our various folding, bending, and cutting machines.

3.    Determine What is Included in the Cost

Make sure the equipment has all the tools that you are looking for. If not, see if the manufacturer has a variety of models to choose from that can better suit your needs, or see if there are additional add-ons that can be included.

A new piece of equipment usually has a warranty of one year, and sometimes includes maintenance or service agreements for a certain period after purchase. Most equipment manufacturers also offer remote or in-person training for employees on their equipment. Take advantage of training, and if it isn’t offered request to pay for it to ensure optimal use of your capital purchase.

4.    Consider Used Equipment

If you’re looking for a non-custom built machine, buying used is a good way to save money. Most equipment is built to last several years, so even if you’re buying a five-year-old machine, you can still have 10-15 years of use before it begins to wear down.

If purchasing used, be sure to determine what warranties and/or service tools manufacturers offer, if any, and consider that in your purchase decision as well.

5.    Determine How You Will Purchase Your Capital Equipment

Expensive equipment is not purchased with a single decision. Determine where you will be getting the money for this equipment, such as government grants, loans, and leases, or financing your costs. Be aware of the pros and cons of each purchasing method before making your decision, and make sure your method supports your company in the long term.

6.    Think of Your Business Future

When determining what piece of equipment you purchase, think ahead to the future of your business. Be sure to purchase equipment with a digital base – equipment that connects to IoT can be an asset to your company as more progressive steps are made in technology.

Purchasing advanced technology keeps you ahead of your competition and lets your clients see you as a forward-thinking company.

If you follow these steps, you’ll be well on your way to purchasing the best capital equipment to meet your company’s needs. Remember that with proper planning, you can make sure your business has what it needs to succeed.

If you’re looking to purchase a new or used sheet metal folding, bending, or cutting machine, contact RAS Systems today or request a quote to see how we can help you throughout the process.

Search Product category Any value Sample Label 1 Sample Label 2 Sample Label 3

How to Write a Equipment Rental Business Plan: Complete Guide

• January 30, 2023

👇 Check all our resources on Equipment rental businesses 👇

Whether you’re looking to raise funding from private investors or to get a loan from a bank (like a SBA loan) for your equipment rental business, you will need to prepare a solid business plan.

In this article we go through, step-by-step, all the different sections you need in your business plan for an equipment rental company. Use this template to create a complete, clear and solid business plan that get you funded.

1. Executive Summary

The executive summary of a business plan gives a sneak peek of the information about your business plan to lenders and/or investors.

Though the executive summary is the first and the most important section, it should normally be the last section you write because it will have the summary of different sections included in the entire plan.

Why do you need a business plan?

The purpose of a business plan is to secure funding through one of the following channels:

• Obtain bank financing or secure a loan from other lenders (such as a SBA loan )
• Obtain private investments from investment funds, angel investors, etc.
• Obtain a public or a private grant

How to write an executive summary for an equipment rental business?

The business plan of your equipment rental company must start with a high-level overview of every section: the executive summary.

The overview must be small, attention-grabbing, and focus on the concept, problems, solutions, target audience, financial targets, etc. Ideally, the executive summary must not exceed 1-2 pages.

The executive summary usually consists of 5 major sections:

• Business overview : provide here details on your business e.g. what type of equipment or vehicles will you rent and to whom, where your store is located, your strengths, weaknesses, opportunities and threats (SWOT), etc.
• Market analysis : provide a brief of your market understanding and provide a summary of the equipment rental industry trends, who are your competitors and your target audience, etc.
• People : provide a summary of the key people involved. Provide a brief of their experience in the equipment rental industry. Also include here a chart of the different teams and their reporting lines.
• Financial plan : how much profit and revenue do you expect in the next 5 years? When will you reach the break-even point and start making profits? Make sure to include here a simple chart with your financial projections (revenue, gross profit, net profit , cash flow)
• Funding ask : what loan/investment/grant are you seeking? How much do you need? How long will this last? How do you intend to spend the money?

Equipment Rental Financial Model

Download an expert-built 5-year Excel financial model for your business plan

2. Equipment Rental Business Overview

This section should include the company description, and the following details should be covered for an equipment rental company:

• The equipment/vehicles you will rent to your customers
• The industry / target audience you are focusing on
• The prices for the different vehicles
• The legal structure of your company

Here are the important subsections of the business overview that you must include:

History of the project & mission

Start with a brief description of why you want to start the equipment rental company. The prime focus here should be:

• Why do you decided to create this business today
• Your business’ mission

For example, explain that there are certain customer needs that your competitors are not able to fulfil today, and your business would offer such solutions. This might been what gave you the idea to start your own equipment rental business.

You also need to write a mission and vision statement. A company’s business goals and strategy are all outlined in the mission statement.

Here, you can maybe explain that your rental business’s mission statement and vision is to deliver high-quality construction equipment and vehicles for business customers that cannot afford such expensive machinery, and only need them periodically.

a) Business model

You should research the different business models available to you before launching a new venture. Try to respond to these questions: 

• Would you operate an established franchise rather than starting your own equipment rental business? 
• Will you focus on renting equipment to businesses, or will you instead serve individuals? 
• Do you plan to rent out equipment on a temporary or permanent basis? 
• Will you work with numerous brands or just one to rent their machinery, vehicles, or equipment?

b) Products

Your equipment rental company would offer equipment/vehicles for rent. Explain clearly what type of equipment and vehicles you would offer.

The investors or lenders reading your business plan should get here a clear idea about the equipments, tools or vehicles you offer. For construction equipment and vehicles, this could be for example: bulldozers, forklifts, excavators, etc.

c) Pricing strategy

You should include a price list in this section. You don’t have to go into a lot of details here, use price ranges instead. For instance, the rent for an excavator for the day could range from $400 to $600. 

In addition to the daily rate, make sure to include monthly (or longer term rental rates) too.

A pricing table for each equipment/vehicles you plan to rent will make it easier for lenders or investors to connect your pricing strategy to your financial forecasts.

d) Target audience

Knowing your audience is crucial since it gives you a great competitive advantage.

For example, if you’re starting an equipment rental company for the construction sector, you may choose to focus only on individuals for their small house renovation projects or large construction companies instead.

e) Equipment rental SWOT Analysis

You also need to perform a SWOT analysis for your business. It would give a clear idea about the profitability of your business to the investors. This shall include:

• Strength: include here details such as favorable market conditions, large construction sites in the area, etc. 
• Weakness should include the factors that can hamper the growth of your company, such as your store location (far from busy roads) or your lack or brand recognition as a new small business
• Opportunities should focus on the areas that are not yet exploited by the competitors. It can focus on a specific segment of customers, such as contractors, or simply small tools rental for individuals
• Threats: should include the biggest threats your equipment rental company can face. It can be anything from macro risks (decrease in construction during a recession) to micro risks (aggressive pricing strategy from competitors)

3. Equipment Rental Market Analysis

The second most crucial component of your equipment rental business plan is market analysis. You must show potential investors that you have the right market knowledge. Investors must have faith in the business acumen of the business you intend to start.

Here are some of the important points to address in this section:

a) Market Trends

This section should focus on the market size and the growth opportunities for your equipment rental business. Does the market have less competition? Is the construction growing in the city? Are there sufficient equipment rental companies in the locality to meet the demands?

Collect market data for your area

It is good to get a clear insight into the local data so that you can be sure of your business’s success.

Do some research and include data such as the number of competitors in the locality, their growth, factors leading to growth, etc. Instead, if the market has contracted, you should also include the reasons behind this drop to make sure this isn’t something that will affect your business in the future. 

b) Equipment Rental Competitors

Before you launch your equipment rental company, be sure to research the number of nearby competitors operating in a similar market and the health of their operations. 

Here are a few questions you should address in your competitor analysis :

• The number of businesses leasing or selling the same equipment you do
• The kind of equipment these businesses offer
• Their rental rates (daily, weekly, and monthly) 
• If they provide any additional services 
• Business hours (the later you open, the more accommodating you are for contractors)
• The sectors they focus on
• Any affiliations they may have with other resellers or suppliers of equipment

Why do you need a competitive analysis in your business plan?

You need to bring out the reasons why you are opening an equipment rental company. For example, no competitors cater to the specific segment, such as roofers, or there is a lack of a wider selection of equipment that you plan to offer.

Consider how you may provide your clients with superior products or services at a lower cost.

Would you have a wider or better selection of equipment? Would you target a certain clientele, such as roofers, builders, or contractors? Will you give your consumers additional time to return equipment?

c) Customers

First, check sure there are people in your neighborhood who need the equipment you plan to rent out as a business. However, you may also rent trailers, portable restrooms, sizable tents for gatherings, and other items. The type of equipment is typically associated with construction (vehicles, heavy machinery, and other light tools). 

To decide what kind of equipment you must provide, you must conduct thorough research on the precise requirements of your potential customers. Additionally, it would assist you in figuring out how much cash your equipment can produce and what rentals you can charge for it. 

Your competitor analysis will provide a large portion of this data. Additionally, the information must back up your decision to open an equipment leasing business.

4. Sales & Marketing Strategy

The Sales & Marketing strategy section of your equipment rental business plan should outline precisely how you intend to acquire and retain customers. This can be divided into 2 sections:

• What marketing channels will you use? Common marketing channels for equipment rental businesses can be billboards, email marketing, etc.
• What are your Unique Selling Points ? In other words, what makes your company and its products and services better vs. competitors?

a) Marketing Channels

If you want to start an equipment rental company, you should only target businesses that are in urgent need of tools and equipment or who require consulting services related to those needs. 

Introduce your company to the target market in your area and city, along with any related services. You can deliver them pamphlets and do a presentation at their place of employment. 

Never undervalue the influence of traditional media like newspapers and TV, as well as print media like magazines and newspapers. They will undoubtedly aid in spreading knowledge of your company around the area. 

Utilize online resources and direct marketing strategies, such as a website, using social media, internet directories, as well as Google Ads.

b) Unique Selling Points (USPs)

What makes you stand out from the competition? In other words, how do you set yourself apart from your rivals? This is crucial since you might have to woo clients away from rival businesses especially in the early days of your business. 

A few examples of USPs for equipment rental businesses are:

• Price : You might provide more affordable prices than your rivals
• Specialization : You might offer specific equipment or vehicle that competitors don’t
• Location : your store may be located closer to your customers than your competitors

5. Management & Organizational Structure

The 5th section of your equipment rental business plan should be about people. It should include 2 main elements:

• The management team and their experience / track record
• The organizational structure: what are the different teams and who reports to whom?

a) Management

Here you should list all the management roles in your company.

Of course, the amount of details you need to include here varies depending on the size of your company. For example, a franchise business with a number of equipment rental offices would need more detail vs. an independent store.

If you plan on running your business independently, you may write a short paragraph explaining who are the co-founders and/or senior managers (if there are any in addition to yourself). It’s important to highlight their experience in the industry and previous relevant professional experiences.

b) Organizational structure

No matter how many leadership roles there are, you should now explain how you intend to run the company from a management standpoint.

What are the different teams (management, sales, operations, mechanics, finance, etc.)? Note that you should include these details even if you haven’t hired anyone yet. It will show lenders and investors that you have a solid hiring and management plan to run the business successfully.

A great addition here is to add an organizational chart that list all the roles, from Directors to managers, key supervisory roles, employees and contractors. Make sure to highlight with reporting lines who manages/supervises whom.

6. Financial Plan

The financial plan is perhaps, with the executive summary, the most important section of any business plan.

Indeed, a solid financial plan tells lenders that your business is viable and can repay the loan you need from them. If you’re looking to raise equity from private investors instead, a solid financial plan will prove them your equipment rental business is an attractive investment.

There should be 3 sections to your financial plan section:

• Your historical financials (only if you already operate the business and have financial accounts to show)
• The startup costs of your project (if you start a new business, or if you plan to purchase new equipment and vehicles, etc.)
• Your 5-year financial projections

Historical Financials (optional)

In the scenario where you already have some historical financials (a few quarters or a few years), include them. A summary of your financial statements in the form of charts e.g. revenue, gross profit and net profit is enough, save the rest for the appendix.

If you don’t have any, don’t worry, most new businesses don’t have any historical financials and that’s ok. If so, jump to Startup Costs instead.

Startup Costs

Unlike other businesses, the costs to start an equipment rental company vary significantly from one business to another.

On average, we found out it costs anywhere from $813,000 to $960,000 to start a heavy construction equipment business.

The actual cost depends heavily on:

• The type of equipment (or vehicles) you rent ;
• The number of units making up your fleet ;
• Whether you plan to buy or lease the equipment ;
• The loan downpayment if you take on debt to buy the equipment upfront, etc.

For example, let’s assume you want to buy 15 heavy construction vehicles as a start for your construction equipment rental business, and you take on a loan where you need to put down 20% upfront. Now, assuming these vehicles cost $75,000 each on average, this means you must put down $225,000 yourself.

Equipment Rental 5-Year Financial Projections

In addition to startup costs, you will now need to build a solid 5-year financial model as part of your business plan for your equipment rental company.

Your financial projections should be built using a spreadsheet (e.g. Excel or Google Sheets) and presented in the form of tables and charts in your business plan.

As usual, keep it concise here and save details (for example detailed financial statements, financial metrics, key assumptions used for the projections) for the appendix instead.

Your financial projections should answer at least the following important financial questions :

• How much revenue do you expect to generate over the next 5 years?
• When do you expect to break even ?
• How much cash will you burn until you get there?
• What’s the impact of a change in pricing (say 20%) on your margins?
• What is your average customer acquisition cost ?

You should include here your 3 financial statements (income statement, balance sheet and cash flow statement ). This means you must forecast:

• The number of equipment you rent over time ;
• Your expected revenue ;
• Operating costs to run the business ;
• Any other cash flow items (e.g. capex, debt repayment, etc.).

When projecting your revenue, make sure to sensitize pricing and the number of customers as a small change in these assumptions will have a big impact on your revenues.

7. Funding Ask

This is the last section of the business plan of your equipment rental business. Now that we have explained what type of equipment your company rents, to whom, at what price, but also what’s your marketing strategy , where you go and how you get there, this section must answer the following questions:

• How much funding do you need ?
• What financial instrument(s) do you need: is this equity or debt, or even a free-money public grant?
• How long will this funding last?
• Where else does the money come from? If you apply for a SBA loan for example, where does the other part of the investment come from (your own capital, private investors?)

If you raise debt:

• What percentage of the total funding the loan represents?
• What is the corresponding Debt Service Coverage Ratio ?

If you raise equity

• What percentage ownership are you selling as part of this funding round?
• What is the corresponding valuation of your business?

Use of Funds

Any business plan should include a clear use of funds section. This is where you explain how the money will be spent.

Will you spend most of the loan / investment to acquire the cost for the equipment? Or will it cover mostly the cost of the salaries of your employees the first few months?

Those are very important questions you should be able to answer in the blink of an eye. Don’t worry, this should come straight from your financial projections. If you’ve built solid projections like in our equipment rental financial model template , you won’t have any issues answering these questions.

For the use of funds, we recommend using a pie chart like the one we have in our financial model template where we outline the main expenses categories as shown below.

Privacy Overview

• Imaging Equipment
• Radiology Software
• Women’s Imaging
• Cloud Computing
• Emerging Technology
• Administration
• Staffing Issues
• Patient Safety
• Associations
• Company News
• Facility News
• Industry Events

Select Page

The Capital-Equipment Business Plan

May 5, 2004 | Miscellaneous |

Before building a capital-equipment business plan, it is important to understand its basic elements. The rules that apply to the process change frequently; nonetheless, all capital investments are equations balancing risk and benefit. Capital is derived from profits, from open markets such as bonds, and from other loan vehicles. There is tremendous competition for capital within each organization in health care, but there is also competition for patients among facilities (and enhanced competitive ability can be the result of capital-equipment investment).

The available resources are limited, of course, so it is particularly important to make it clear that an imaging department is a revenue source for the parent enterprise. Because imaging produces cash, any case having a positive net present value should be seen in a favorable light. Building the case in favor of an acquisition involves justifying it through the business plan.

PLAN CONTENT

The written plan should outline the reasoning and logic used to arrive at the capital-equipment request. It should cover the objective to be accomplished, why the proposal meets that need, how the objective is related to the mission and/or vision of the organization, and how the proposed acquisition would affect other departments or services within the enterprise. In addition, the management and leadership planned for the acquisition should be specified, and the person who has responsibility for the new service should be named.

Activity that has already taken place related to the proposed acquisition should be summarized, and the current stage of development of any relevant new services should be stated. A broad description of the modality or service (and the availability of personnel with the skills required to offer it) should be provided. How the prospective addition could benefit customers (both clinicians and patients) should be clarified, with particular attention given to the ways in which the proposed service would differ from the current offerings of the institution. Suitable locations for the new equipment should be suggested (with any special site requirements or environmental controls noted). An exit strategy for the service should also be devised.

Accurate data sources, both internal and external, will be needed in determining and validating the market potential of a proposed acquisition. Any entry barriers that exist in the marketplace should be examined. The plan should incorporate a review of the effects of regulation, economic influences, seasonality of demand for the service or modality, and the most advantageous timing for its introduction. Historical volumes, state and local trends, and technological influences should be outlined.

The pro forma section of the business plan should be a list of all operative assumptions. This is especially important because those who best understand the need for new equipment are unlikely to be the individuals who will decide whether to acquire it. By defining all assumptions clearly, the plan’s writers can ensure that all readers will understand the information presented, despite variations in their training and experience. Readers should, of course, be provided with clear, concise, and valid data.

The assumptions covered by the pro forma section should be the standard models and basic parts involved, the gross and net revenues expected, the variable and fixed expenses predicted, any renovations needed, the cost of suitable facilities, depreciation, the cost of capital, and the modified internal rate of return. In addition, starting dates for the project, applicable tax rates, average inventory, and volume forecasts should be noted.

Not every capital-equipment acquisition calls for a business plan, but one is likely to be required for any proposed purchase costing more than $250,000.

The level of approval needed may be based on the total cost of the acquisition, with requirements differing among institutions. Generally, the vice president who oversees the department can approve smaller purchases (perhaps those costing less than $25,000) alone, but the COO may need to approve larger acquisitions. For the largest outlays (typically those of $1 million or more), the approval of the CFO, CEO, and trustees may be required. The minimum expenditure for which a business plan is needed may be as low as $500 or as high as $5,000. Approval due dates for each year’s capital-equipment expenditures will also vary and must be kept in mind. These dates often precede operating-budget deadlines.

Those whose approval will be needed for the proposed acquisition may approach capital equipment from several different angles. The business plan should answer questions specific to each of these perspectives. For example, a vice president may have the best understanding of the department and how it operates, while the COO will be most interested in the interdepartmental ramifications of the acquisition. The CFO will scrutinize positive and negative financial effects to be expected. The CEO and board of trustees will be concerned about strategy, along with the acquisition’s alignment with the mission and vision of the enterprise.

The business plan will address all of these concerns, but each presentation of the plan will vary to reflect the primary interests of the audience. The presenters should not attempt to demonstrate how hard they have worked to prepare the plan; instead, they should focus on getting approval to proceed to the next level of the acquisition process. In a large organization, it is not uncommon to make the presentation more concise as it rises through the executive hierarchy.

SUMMARY AND PROPOSAL

The most concise written form that the proposal will take is the executive summary, which should be one to two pages long. Although this appears at the beginning of every copy of the plan, it is written last (in order to incorporate the most important points from every completed section of the plan). It is especially vital that all significant information be summarized here because this is, in many organizations, the only part of the plan that every recipient will read in its entirety. Reading the executive summary alone should provide an overview of what is being proposed, and by whom; where and when it will be implemented; why it is necessary; its financial characteristics; and how it is expected to affect the organization.

A section describing the proposed acquisition (and citing credible information sources) should cover current and projected population demographics, market demand, competing hospitals and joint ventures, market share considered by service line as well as modality, regulatory issues (including any applicable certificates of need), payor trends such as relevant reimbursement levels, productivity, and the life expectancy of the technology. The department’s referral sources should be described, as should any backlogs or other delays that may be causing referral losses.

CURRENT CIRCUMSTANCES

An examination of the current state of the affected service(s) is needed, and that state should be compared with applicable benchmarks to provide a picture of where the facility now stands.

Carrying out an analysis of the strengths and weaknesses of the organization and the opportunities and threats that it faces (a SWOT evaluation) will often be illuminating. The SWOT matrix, usually displayed on four or six text panels, can point out what needs to be done, and can be helpful in putting problems into perspective. It is a distilled version of the present situation, containing only the most critical points in a concise format, sometimes color coded to enhance clarity. It may also prove enlightening to conduct the SWOT exercise for the organization’s competitors. A SWOT analysis forces an objective analysis of the department and organization’s position in the marketplace. Simultaneously, an effective SWOT analysis will help determine in which areas the institution is succeeding, allowing it to justify the allocation of resources in ways that maintain any dominant positions that it may have.

As strengths, the SWOT matrix should list advantages, what the entity does well, and the resources available to it. Weaknesses include areas needing improvement, what the facility lacks, and activities performed poorly. Depending on the situation, these may be weaknesses or strengths: location, facilities, equipment, staffing, organization, and leadership.

Opportunities listed may be interesting trends and new business prospects. Threats are obstacles, bad debt or cash-flow problems, and weaknesses that seriously threaten the enterprise. Changing technology and competitors’ activities can be opportunities or threats, as can changes in government policy, social patterns, population profiles, and lifestyles.

FINANCIAL ANALYSIS

The financial analysis (see Figures 1a and 1b) summarizes inpatient and outpatient revenues, considered separately if both apply; the capital expense (equipment, building/renovation, and depreciation); and an operating budget for the acquisition. It also consists of financial statements such as a balance sheet; an income statement (including gross patient revenues, contractual allowances, bad debt and charity, salaries, supplies, total operating expenses, direct contribution margin, indirect variables, total inpatient and outpatient volumes, and total contribution margin); and a cash-flow statement. These are accompanied by a breakeven analysis, key ratio projections, and summaries of relevant financial resources (compiled by the CFO) and financial strategy (determined by the CEO and CFO). Possible added costs, such as the need for travelers to augment existing staff, should be discussed here. How the project is expected to create new revenue streams or protect current cash flows should be specified.

After the financial analysis is complete, the plan should note the level of support for the project expected from patients and referring clinicians and should emphasize why the acquisition is needed now (and should not be held for a later capital budget). Because capital is limited, why this project deserves funding more than competing proposals should be stated. In the final summary, the authors should indicate the benefits of the proposed acquisition that will be gained outside the radiology department, both within and outside the enterprise.

ATTACHMENTS

The final section of the capital-equipment business plan is a series of attachments corroborating the evaluation made in the body of the document. The attachments should include construction quotes, equipment quotes, ramp-up requirements, the pro forma, a timeline, a list of regulatory deadlines, references to data sources cited in the text, and letters of support for the project.

Another helpful attachment is a simple Gantt chart (see Figure 2). This is a useful overview for those who want to see each step of the project quickly, without reading the entire business plan. Constructed as a bar graph using a horizontal time scale, the chart should show the expected duration, cost, and person responsible for each step in the acquisition and implementation processes. 

Richard S. Helsper, RT, MBA, is vice president of operations, Clarian Health Partners, Indianapolis. This article has been excerpted from Creating a Capital Equipment Business Plan, which he presented at the 31st annual meeting of the American Healthcare Radiology Administrators on August 12, 2003, in Anaheim, Calif.

Related Posts

Is drive to 7t necessary.

May 16, 2002

DocbookMD, Medweb Partner to Integrate Telemedicine into Physicians’ Daily Practice

May 9, 2013

MD Scientific Demands Royalties on CIN-Prevention Method

June 16, 2006

Ultraprecise Radiotherapy

January 31, 2003

Recent Posts

• Study Shows 67% Surge in Neurovascular Imaging for Headache, Dizziness
• Fire Breaks Out Near MRI Room at Jamaica Plain VA
• Patient Access of Radiology Reports Before, After Cures Act Implementation
• FDA OKs Siemens Healthineers’ Magnetom Terra.X 7T MRI
• Imaging Spending Up 35.9% from 2010 to 2021

Subscribe To Our Newsletter

Join our mailing list to receive the latest news and updates from our team.

You have Successfully Subscribed!

Smart Financial Decisions Made Simple

• Helping you make informed financial decisions
• News, reviews and advice backed by deep expertise
• Independent, objective coverage of all personal finance topics

Money Advice, News And Product Reviews From A Name You Trust

Making the most of your money.

We’re dedicated to helping you turn your aspirations into reality. We provide you with the knowledge and research you need to make informed financial decisions you can feel confident in, so you can get back to doing the things you care about most.

Providing industry expertise

Our team comes to you with decades of experience in the personal finance space. We’re passionate about helping you make the financial decisions and choose the financial products that are right for your life and goals.

Getting the best deals

We have done thoughtful research across a wide range of financial companies and services so you can make the best decisions for your personal finances.

Our Editorial Team

Katie doyle.

SVP of Content, Forbes Marketplace

Managing Editor, Insurance

Mike Cetera

Editor in Chief, Forbes Marketplace U.S.

Caroline Lupini

Managing Editor, Credit Cards & Travel Rewards

Michael Benninger

Lead Editor, Banking

Jordan Tarver

Lead Editor, Mortgages & Loans

Michael Adams

Lead Editor, Investing

Caren Weiner

Lead Editor

Doug Whiteman

Editorial Director, Financial Services

Kelly Reilly

Editorial Director

Mitch Strohm

Forbes Advisor’s Best Of Awards

From credit cards and banking to insurance and loans, we’ve rated the top financial products and services to help you make the most informed decisions.

Calculators

Free Online Calculators

Learn how to create a budget, calculate retirement savings, calculate mortgage repayments, and find your debt-free date.

Latest Headlines And How-Tos

Best Car Insurance Companies Of 2024

Finding a great insurance company can save you money and frustration. We evaluated insurers to find the best car insurance companies based on rates, coverage features available, complaints and their collision claims processes.

More From Advisor

Apr 03, 2024

2024 Simplilearn Review: Balancing Student Engagement With Flexibility

Simplilearn delivers practical tech education and upskilling through online bootcamps, certificate programs and other types of courses. If you’re considering investing in a Simplilearn bootcamp, I can help you decide whether it’s worth your time and money.I met with company...

Where To Earn A Ph.D. In Data Science Online In 2024

Data science is among the most in-demand skill sets in the modern economy. Data science professionals help businesses make decisions by creating analytical models, combining elements of math, artificial intelligence, machine learning and statistics.If you want to pursue a high-paying...

How To Transfer From Community College To University: A Guide

Community colleges provide an excellent option for higher education students seeking affordability and flexibility. Community colleges typically focus on two-year associate degrees and certificate programs; today, you can even earn a bachelor’s degree at a community college.Starting out at a...

7 Best Fidelity ETFs Of April 2024

Fidelity Investments offers a compact selection of about 65 exchange-traded funds (ETFs) in the U.S. Its line-up includes both passive funds and actively managed ETFs, with a nod toward factor and theme investing. Investors can meet most of their ETF...

Best RN-To-NP Programs Online Of 2024

Registered nurses looking to advance their nursing education, pursue higher-level roles and increase their earning potential might consider earning a Master of Science in nursing (M.S.N.) to become a nurse practitioner (NP). Many colleges offer abridged RN-to-NP programs online, allowing...

Best Balance Transfer Cards Of April 2024

A balance transfer credit card can be a powerful tool in your debt-busting arsenal. A 0% introductory APR offer on a credit card can save money by having all your payments go toward knocking out the principal balance instead of...

10 Best Vanguard ETFs Of April 2024

Vanguard offers more than 80 exchange-traded funds in the U.S. tailored to a broad range of investment strategies and financial goals. From niche sector ETFs to total market equity funds, there are Vanguard ETFs designed to satisfy every investing preference.To...

eVoice Review 2024: Features, Pros & Cons

As a virtual phone service, eVoice provides businesses with a simple but professional phone system for effective communication. It offers unlimited domestic calls throughout the United States and Canada, an auto attendant and virtual faxing. In addition to standard plan...

Most Consumers Want Their Credit Card To Provide Rewards for Everyday Purchases Like Groceries and Gas

Credit cards are a useful and often necessary part of modern finances, but with so many options and factors to consider, choosing the right card can prove challenging. What are Americans looking for in new cards? Do they primarily value...

7 Best Volatility ETFs Of April 2024

Stock prices rise and fall constantly, sometimes by a lot. That’s the nature of the stock market, and it’s also a good definition of volatility. Professional investors use volatility ETFs to profit from the endless churn of stock prices or...

We Help You Make Smart Financial Decisions

Car insurance.

• Best Car Insurance
• Cheap Car Insurance
• Car Insurance For Teens
• How Much Car Insurance Do I Need?
• Compare Car Insurance Quotes

Travel Insurance

• Best Travel Insurance
• Best Pandemic Travel Insurance
• Best CFAR Travel Insurance
• Best Travel Insurance For Seniors
• Best Cruise Insurance

Pet Insurance

• Best Pet Insurance
• Best Pet Insurance For Pre-Existing Conditions
• How Much Does Pet Insurance Cost?
• What Does Pet Insurance Cover?
• Compare Pet Insurance Quotes

Life Insurance

• Best Life Insurance
• Best Term Life Insurance
• Best Whole Life Insurance
• Best Senior Life Insurance
• Best No-Exam Life Insurance

Home Insurance

• Best Home Insurance
• Cheap Homeowners Insurance
• How Much Do I Need?
• What Does Home Insurance Cover?
• Flood Insurance

Renters Insurance

• Best Renters Insurance
• Cheap Renters Insurance
• What Does Renters Insurance Cost?
• What Does Renters Insurance Cover
• Best Cities For Renters

Business Insurance

• Best Small Business Insurance
• Workers Compensation Insurance
• Best General Liability Insurance
• Best Commercial Auto Insurance
• Types of Small Business Insurance

Health Insurance

• Best Health Insurance
• Best Dental Insurance
• Best Short-Term Health Insurance
• Best Affordable Health Insurance
• Best Vision Insurance

Credit Cards

• Best Credit Cards
• Best Balance Transfer Credit Cards
• Best First Credit Cards
• Best Rewards Credit Cards
• Best Travel Rewards Credit Cards

More From Credit Cards

• Best Business Credit Cards
• Best Cash Back Credit Cards
• Best 0% APR Credit Cards
• Best Student Credit Cards
• Best Credit Cards For Bad Credit

Credit Card Reviews

• American Express Platinum Card Review
• Petal 2 Visa Credit Card Review
• Citi Custom Cash Card Review
• Citi Double Cash Card Review
• American Express Gold Card Review
• Chase Sapphire Preferred Credit Card Review
• American Express Business Gold Card Review
• Blue Cash Everyday Credit Card Review

Best Banking Products

• Best Online Banks
• Best Online Savings Accounts
• Best CD Rates
• Best Money Market Accounts
• Best Student Checking Accounts
• Best Bank Bonuses
• Best Savings Accounts

More From Banking

• Best Checking Accounts
• Best 6-Month CD Rates
• Best 1-Year CD Rates
• Best Ways To Send Money

Banking Guides

• Your Complete Guide To Direct Deposit
• Who Needs A Business Checking Account?
• ATM Withdrawal Limits
• How To Protect Your Online Banking Information
• How Checking Accounts Work
• How Savings Accounts Work

Banking Reviews

• Marcus by Goldman Sachs Review
• Ally Bank Review
• CIT Bank Review
• Chime Review
• Capital One 360 Bank Review
• Discover Bank Review

Mortgages & Loans

• Best Mortgage Rates
• Best Refinance Rates
• Best Mortgage Lenders
• Best Online Mortgage Lenders
• Best Mortgage Refi Lenders

Personal loans

• Best Personal Loans
• Best Debt Consolidation Loans
• Best Emergency Loans
• Personal Loans For Bad Credit
• How Do Personal Loans Work?

Student Loans

• Best Private Student Loans
• Best International Student Loans
• Best Student Loan Refinance
• Student Loan Interest Rates
• FAFSA Deadline For 2021 - 2022 School Year
• Mortgage Calculator
• Mortgage Refinance Calculator
• Student Loan Calculator
• Student Loan Refinance Calculator
• Currency Conversion Calculator

Investing, Retirement & Taxes

• Best Online Brokers
• Best Online Brokers For Beginners
• Best Money Market Mutual Funds
• Best Investment Apps For Your Portfolio
• Best Cryptocurrency Exchanges

More From Investing

• What Is A Brokerage Account?
• How To Invest In Stocks
• How To Open A Brokerage Account
• What Are ETFs?
• Top 10 Cryptocurrencies
• Best Retirement Plans
• 401k Contribution Limits
• Forbes Guide To FIRE
• What Is a 401(k)?
• What Is A Roth 401(k)?
• Best Tax Software
• Best Tax Software For The Self-Employed
• Tax Brackets
• Income Tax Calculator
• Capital Gains Tax Calculator
• When Will I Receive My Tax Refund

Smart Career Decisions Made Simple

Let’s work together to help people make life’s most important decisions

• Election 2024
• Entertainment
• Newsletters
• Photography
• Personal Finance
• AP Buyline Personal Finance
• Press Releases
• Israel-Hamas War
• Russia-Ukraine War
• Global elections
• Asia Pacific
• Latin America
• Middle East
• Election Results
• Delegate Tracker
• AP & Elections
• March Madness
• AP Top 25 Poll
• Movie reviews
• Book reviews
• Personal finance
• Financial Markets
• Business Highlights
• Financial wellness
• Artificial Intelligence
• Social Media

Why is Japan changing its ban on exporting lethal weapons, and why is it so controversial?

FILE - Britain’s Defense Minister Grant Shapps, right, Italy’s Defense Minister Guido Crosetto, left, and Japanese Defense Minister Minoru Kihara, center, attend a joint press conference after a signing ceremony for Global Combat Air Programme (GCAP) at the defense ministry on Dec. 14, 2023, in Tokyo, Japan. Japan’s Cabinet on Tuesday, March 26, 2024, approved a plan to sell future next-generation fighter jets that it’s developing with Britain and Italy to other countries, in the latest move away from the country’s postwar pacifist principles. (David Mareuil/Pool Photo via AP, File)

Britain’s Defense Minister Grant Shapps, right, Italy’s Defense Minister Guido Crosetto, left, and Japanese Defense Minister Minoru Kihara, center, shake hands after a signing ceremony for the Global Combat Air Programme (GCAP) at the defense ministry, Dec. 14, 2023, in Tokyo, Japan. (David Mareuil/Pool Photo via AP, File)

Japanese Defense Minister Minoru Kihara speaks during a news conference at the parliament building in Tokyo on Tuesday, March 26, 2024, following the Cabinet’s decision to ease Japan’s strict defense equipment transfer rules. Japan’s Cabinet on Tuesday approved a plan to sell future next-generation fighter jets that it’s developing with Britain and Italy to other countries, in the latest move away from the country’s postwar pacifist principles. (Keisuke Hosojima/Kyodo News via AP)

• Copy Link copied

TOKYO (AP) — Japan’s Cabinet OK’d a plan to sell future next-generation fighter jets to other countries on Tuesday, its latest step away from the pacifist principles the country adopted at the end of World War II.

The controversial decision to allow international arms sales is expected to help secure Japan’s role in a year-old project to develop a new fighter jet together with Italy and the U.K., but it’s also part of a move to build up Japan’s arms industry and bolster its role in global affairs.

For now, Tokyo says that it doesn’t plan to export co-developed lethal weapons other than the new fighters, which aren’t expected to enter service until 2035.

Here is a look at what the latest change is about and why Japan is rapidly easing weapons export rules.

WHAT’S CHANGING?

On Tuesday, the Cabinet approved a revision to its guidelines for selling defense equipment overseas, and authorized sales of the future jet. The government says that it has no plans to export other co-developed lethal weapons under the guidelines, and it would require Cabinet approval to do so.

Japan has long prohibited most arms exports under the country’s pacifist constitution, although it’s begun to take steps toward a change amid rising regional and global tensions. In 2014, it began to export some non-lethal military supplies, and last December, it approved a change that would allow sales of 80 lethal weapons and components that it manufactures under licenses from other countries back to the licensors. The change, which was made in December, cleared the way for Japan to sell U.S.-designed Patriot missiles to the United States, helping replace munitions that Washington is sending to Ukraine.

The decision on jets will allow Japan to export lethal weapons it co-produces to other countries for the first time.

WHAT IS THE NEW FIGHTER JET?

Japan is working with Italy and the U.K. to develop an advanced fighter jet to replace its aging fleet of American-designed F-2 fighters, and the Eurofighter Typhoons used by the U.K. and Italian militaries.

Japan, which was previously working on a homegrown design to be called the F-X, agreed in December 2022 to merge its effort with a British-Italian program called the Tempest. The joint project, known as the Global Combat Air Program, is based in the U.K., and hasn’t yet announced a new name for its design.

Japan hopes the new plane will offer better sensing and stealth capabilities amid growing tensions in the region, giving it a technological edge against regional rivals China and Russia.

WHY IS JAPAN CHANGING ITS STANCE ON ARMS EXPORTS?

In its decision, the Cabinet said that the ban on exporting finished products would hinder efforts to develop the new jet, and limit Japan to a supporting role in the project. Italy and the U.K. are eager to make sells of the jet in order to defray development and manufacturing costs.

U.K. Defense Minister Grant Shapps has repeatedly said Japan needs “updating” to not cause the project to stall.

Kishida sought Cabinet approval before signing the GCAP agreement in February, but it was delayed by resistance from his junior coalition partner, the Buddhist-backed Komeito party.

Exports would also help boost Japan’s defense industry, which historically has catered only to the country’s Self Defense Force, as Kishida seeks to build up the military. Japan began opening the door to some exports in 2014, but the industry has still struggled to win customers.

The change also comes as Kishida is planning an April state visit to Washington, where he is expected to stress Japan’s readiness to take a greater role in military and defense industry partnerships.

Japan sees China’s rapid military buildup and its increasing assertiveness as threats, especially growing tensions in the disputed East and South China Seas. Japan also sees increasing joint military exercises between China and Russia around Japan as a threat.

WHY ARE ARMS EXPORTS DIVISIVE?

Because of its wartime past as an aggressor and the devastation that followed its defeat in World War II, Japan adopted a constitution that limits its military to self-defense and long maintained a strict policy to limit transfers of military equipment and technology and ban all exports of lethal weapons.

Opposition lawmakers and pacifist activists have criticized Kishida’s government for committing to the fighter jet project without explaining to the public or seeking approval for the major policy change.

Recent polls show public opinion is divided on the plan.

To address such concerns, the government is limiting exports of co-developed lethal weapons to the jet for now, and has promised that no sales will be made for use in active wars. If a purchaser begins using the jets for war, Defense Minister Minoru Kihara said, Japan will stop providing spare parts and other components.

WHAT’S NEXT?

Potential markets for the jet include the 15 countries with which Japan has defense partnership agreements, such as the United States, Germany, India and Vietnam. A defense official said Taiwan — a self-governed island that China claims as its own territory — is not being considered. He spoke on condition of anonymity due to briefing rules.

More weapons and components could be added to the approved list under the new export guidelines.

When Kishida goes to Washington in April, he’s likely to talk to U.S. leaders about potential new defense and weapons industry cooperation. The new policy could also help Japan push for a bigger role in alliances and regional defense partnerships like Australia, the U.S. and the U.K.'s AUKUS.

Follow AP’s Asia-Pacific coverage at https://apnews.com/hub/asia-pacific

• River City Live
• Newsletters

BREAKING NEWS

LIVE RADAR: The Weather Authority tracks strong, severe storms in NE Florida, SE Georgia

Traffic alert: i-95 crash involving semi-truck snarls traffic near airport road, 2 warnings, a watch and an advisory in effect for 6 regions in the area, haiti's surge in gang violence has led more than 53,000 to flee the capital in less than three weeks.

Evens Sanon

Associated Press

Copyright 2024 The Associated Press. All rights reserved

Street vendors withdraw from the area where they were selling their bread, near the National Palace, in Port-au-Prince, Haiti, Tuesday, April 2, 2024. (AP Photo/Odelyn Joseph)

PORT-AU-PRINCE – More than 53,000 people have fled Haiti’s capital in less than three weeks, the vast majority to escape unrelenting gang violence , according to a United Nations report released Tuesday.

More than 60% are headed to Haiti’s rural southern region, which worries U.N. officials.

Recommended Videos

“Our humanitarian colleagues emphasized that these departments do not have sufficient infrastructure, and host communities do not have sufficient resources, to cope with the large number of people fleeing Port-au-Prince,” said U.N. spokesman Stephane Dujarric.

The southern region already hosts more than 116,000 Haitians who previously left Port-au-Prince, according to the report by the U.N.'s International Organization for Migration.

The exodus from the capital of some 3 million people began shortly after powerful gangs launched a series of attacks on government institutions at the end of February. Gunmen have burned police stations, opened fire on the main international airport that remains closed and stormed Haiti’s two biggest prisons , releasing more than 4,000 inmates.

More than 1,500 people have been reported killed up to March 22, and another 17,000 have been left homeless, according to the U.N.

Among the rare travelers trying to head north instead of south from the capital were Marjorie Michelle-Jean, a 42-year-old street vendor, and her two children, ages 4 and 7.

“I want to see them alive,” she said, explaining that stray bullets keep hitting the tin roof of their home. Last week, they tried twice to travel to her hometown of Mirebalais in central Haiti but were forced to turn back because of roadblocks.

“I will definitely try again,” she said. “It’s absolutely not safe in Port-au-Prince.”

Of the 53,125 people who fled Port-au-Prince from March 8-27, nearly 70% already had been forced to abandon their homes and were living with relatives or in crowded and unsanitary makeshift shelters across the capital, the U.N. found.

More than 90% of Haitians leaving the capital have been crowding into buses, risking travel through gang-controlled territory where gang rapes have been reported and gunmen have been known to open fire on public transport.

The violence forced Prime Minister Ariel Henry to announce last month that he would resign once a transitional presidential council is created . Henry was in Kenya to push for the U.N.-backed deployment of a police force from the East African country when the attacks began, and he remains locked out of Haiti.

The transitional council , which will be responsible for choosing a new prime minister and council of ministers, has yet to be formally established.

Meanwhile, the mass migration from Port-au-Prince is expected to continue.

But Gary Dorval, 29, who was among a handful of people joining a demonstration on Tuesday, said he wants to stay until a new government is installed: “I want to be part of the change.”

Associated Press reporters Dánica Coto in San Juan, Puerto Rico, and Edith M. Lederer at the United Nations contributed.

Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.

Click here to take a moment and familiarize yourself with our Community Guidelines.