What is the biggest expense related to equipment operation for your business?
92% of small business owners, 87% of mid-sized businesses and 92% of large corporations all answered the question the same way: Maintenance downtime.
Whether it’s equipment rental, technician repair expense, loss of productivity and even employee dissatisfaction, there are a host of expensive factors that eat into the P&L of businesses and departments with strong equipment needs for operation. With the almost universal recognition of maintenance downtime being such a huge expense, companies must have a crystal clear view of the financial impact of this downtime, right?
What is the financial impact of equipment downtime?
96% of small business owners, 91% of mid-sized businesses and 84% of large corporations CANNOT answer the question with any degree of accuracy. They require the equipment to profitable operation, understand that downtime is the largest expense they face and they simply don’t know the financial impact of this downtime.
Could a lack of information lead to misguided decisions?
Of course. But it’s understandable. Companies require a wide variety of equipment to successfully operate and to think every company has a well refined view into the total cost of ownership that is updated annually for each asset class from $500 iPads to $20,000,000 barges is asking a bit much. A recent survey indicated that the average small business leverages as many as 8 different types of equipment to operate and the average Fortune 500 company requires more than 100 equipment types. Taking a pro-active view of that many asset types would require a ton of work, so companies typically lean a little too heavily on the “don’t fix it if it isn’t broken” approach.
Well…it will break. Almost all equipment will breakdown. So, for the most important equipment to your business, you might want to have a plan. To reduce these downtime experiences, companies focusing too heavily on maintenance, rental or “extra assets” on the books to use as replacements might be missing the point.
The real solution: Life Cycle Management
At what hours of usage do your lift trucks become less reliable? At what year of use do your servers struggle to keep up with data needs? At what mileage does rolling stock roll a little less effectively? Again, business stakeholders may not know the answer, but here’s why it’s important to take an educated guess: if you can reduce the exposure to end of life maintenance, you can improve productivity and strength the bottom line. Most equipment maintenance expense follows some version of an exponential curve:
In this example, if you could replace the equipment at year 6, you could avoid a terrific amount of maintenance downtime expense for all similar assets.
The important role of leasing
Leasing can help you pay for what you use of these assets, just for the period of time where they are not an administrative burden. In the above example, you could do a simple 6 year operating lease that maximizes cash flows, reduces capital outlays, keeps you on the cutting edge of this equipment technology and helps you avoid the big impact of maintenance down time issues. Or you could do 6 year lease with a purchase option that gives you the flexibility to redeploy this asset into lower usage operations, reducing the maintenance burden and still enabling an affordable way to put newer assets to work in the higher usage application.
Looking at equipment usage this way might be the best way to reduce the burden of maintenance downtime, keep you on the cutting edge of technology and potentially be more affordable than what you are doing today. Leveraging leasing to power these solutions is an important consideration for success.
For more than 30 years, the Somerset family of companies has redefined equipment finance. We take our clients further by providing services around the financing of equipment for mid-sized and large companies throughout the Americas, Asia and Europe and offer finance solutions can help you with a life cycle management approach. We help you think bigger and go beyond finance. Let’s talk.