Plan for Today and Tomorrow
Make sure your capital financing strategy allows for the long term and is part of your overall business plan.
July 2008 by Chris Mc Loone
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Not many businesses are going to be successful without an overall business plan that includes where they are, where they want to go, and how they want to get there. One critical component of a business plan is a capital financing strategy. After all, a package printer isn’t going to grow its printing business without upgrading or updating equipment over time. Not every capital financing plan is the same, and each will be built based on company preferences, such as leasing over buying or whether or not to finance large expenditures.
Building your plan
It is difficult to pin down every component of a capital financing plan, since each will be different, but there are some commonalities. “Any capital financing strategy should be part of a larger business strategy and should be build upon a complete assessment of a company’s productivity, efficiency issues, cost savings options, and equipment,” says Jim Dugan, vice president, financial services, Heidelberg USA. “Companies should examine how investments fit into their business plans; capital projections; alternative options, including worst- and best-case scenario planning; overall financial security; and flexibility for future growth.”
Initially, as a company builds a plan, Jon Guy, president of Gallus, Inc., says that cash requirements will be greater in the initial period of expanding your business. “Once business builds up, you ‘live off the land,’” he says. He adds that you must ensure you have enough capital to cover not only machines, but consumables as well.
Peter Levy, president of Poly-Pak Industries, suggests that the most important component of a capital financing strategy is to “make sure your return more than pays for your expenditure.”
Deciding how to pay
How to pay for capital investments includes many options. Some prefer to lease, some prefer to finance, while some prefer to buy equipment outright. “Typically, only the largest print companies have the resources and existing cash flow to pay cash for major capital investments,” says Dugan. “The majority of Heidelberg’s customers finance their purchases with their own lenders, while others may take advantage of using Heidelberg’s financing partners.”
Paul Styers, president of Styers Equipment Co., concurs. “Most converters finance through their bank or find their own leasing company depending on the size of the transaction,” he says. “Small transactions, under $50,000, are usually cash deals.”
Levy says Poly-Pak uses its bank for all capital expenditures. “[It] doesn’t cost us any more and the bank is always looking to lend money on equipment, he says, adding that Poly-Pak finances most of its capital expenditures. “Money is cheap today, so we borrow instead of taking out of our cash account.”
Building your plan
It is difficult to pin down every component of a capital financing plan, since each will be different, but there are some commonalities. “Any capital financing strategy should be part of a larger business strategy and should be build upon a complete assessment of a company’s productivity, efficiency issues, cost savings options, and equipment,” says Jim Dugan, vice president, financial services, Heidelberg USA. “Companies should examine how investments fit into their business plans; capital projections; alternative options, including worst- and best-case scenario planning; overall financial security; and flexibility for future growth.”
Initially, as a company builds a plan, Jon Guy, president of Gallus, Inc., says that cash requirements will be greater in the initial period of expanding your business. “Once business builds up, you ‘live off the land,’” he says. He adds that you must ensure you have enough capital to cover not only machines, but consumables as well.
Peter Levy, president of Poly-Pak Industries, suggests that the most important component of a capital financing strategy is to “make sure your return more than pays for your expenditure.”
Deciding how to pay
How to pay for capital investments includes many options. Some prefer to lease, some prefer to finance, while some prefer to buy equipment outright. “Typically, only the largest print companies have the resources and existing cash flow to pay cash for major capital investments,” says Dugan. “The majority of Heidelberg’s customers finance their purchases with their own lenders, while others may take advantage of using Heidelberg’s financing partners.”
Paul Styers, president of Styers Equipment Co., concurs. “Most converters finance through their bank or find their own leasing company depending on the size of the transaction,” he says. “Small transactions, under $50,000, are usually cash deals.”
Levy says Poly-Pak uses its bank for all capital expenditures. “[It] doesn’t cost us any more and the bank is always looking to lend money on equipment, he says, adding that Poly-Pak finances most of its capital expenditures. “Money is cheap today, so we borrow instead of taking out of our cash account.”
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