Is this a business investment?
Strictly speaking, an investment in equipment for your business is something that will earn income for your business, pay itself back over a reasonable amount of time, and then earn profit over its lifespan. That’s the goal, anyway.
However, it’s not always reality; especially if you’re someone like me who loves equipment. I love the entire purchasing process: watching reviews, reading articles, acquiring the item, and last but certainly not least, using the equipment! However, having an excuse to write things off as a business purchase can enable poor spending choices at the detriment of both one’s business and personal finances.
As much as I’d like to say every piece of equipment I’ve purchased for my businesses has earned money, the fact is, a fair amount hasn’t. I haven’t always been business minded when it came to equipment purchases. I made a lot of guesses as to what would make money, and I’ve also purchased a lot of things because I was just fascinated with those pieces of gear and thought they’d be useful as a business purchase at some point. It reminds me of a saying that we purchase things based on emotion and use logic and reason to justify those purchase.
There’s a saying which I came across which really impacted me, which is: “Where there is no vision, the people perish.” Basically this means if you don’t have a plan, things won’t go well.
Return on Investment
2020 was a big reset yet for me, financially speaking. Prior to the lockdowns and industry closures, I had been an equipment purchasing machine. I started to leverage debt in order to finance these purchases, and over a period of years, I started feeling pressure. I had always been able to make my payments monthly, but the problem is it felt like it was getting out of control. I was making a decent amount of money, but I was also spending a lot of it. I always felt surprised at the end of each month: “Why don’t I have more in the bank?”
When 2020 came around, I was forced to look at my spending. My equipment sat for months, no jobs to work on, no rentals, etc. One day I had a conversation with a friend and they shared with me how they were calculating all of their profit on equipment they owned. I had not been doing this up to this point in my career, so I thought it might be interesting to see how I had been doing. I had a lot of time on my hands with the pandemic and all, so I sat with a spreadsheet over a couple of days and crunched the numbers. What I had found surprised me:
1. The items I thought would make money just broke even during its lifetime. The items I didn’t think would make much actually made way more than I thought.
2. A lot of my purchasing decisions for the business were not grounded in reality at all. Instead, they were based on hypotheticals. “This (insert equipment here) will be a game changer for me” would routinely enter my mind to justify purchasing something.
Making More Consistent Return on Investment
After doing the math, I set out on a new path. I would track every single rental for every single item. I would look to see what items I would also rent for a majority of the projects I was on, and purchase those. I would avoid purchasing items that did not return an ROI. That doesn’t mean I wouldn’t allow myself to purchase something experimental to try new things; but my spending would be more more controlled.
As the industry started to come back to life, I set this plan in motion, and diligently kept track of every project and its needs. I saw what types of equipment were needed for the clients and industries I work in to achieve the outcome of the project. After a few months of analysis, I started to purchase the equipment that I thought would do well.
I was pleasantly surprised that it started to work. My equipment started making consistent income for the first time. All of the accessories and peripherals that I used to think were boring, were actually huge staples for every single project. Things like monitors for example, that get used on every single project.
What Should I Do?
Over the years I’ve had a lot of conversations with various colleagues about equipment. Many of those conversations were aspirational; owning high end cameras, lenses, etc. – some of which cost as much or more than a luxury vehicle. Speaking from experience, there definitely seems to be a thought that one can be taken more seriously, have their work go to the next level, and so on if ‘only’ a piece of equipment could be obtained.
I sometimes get asked my opinion by colleagues on whether or not they should buy a piece of equipment. All I can do is ask questions to help them talk through it. Do they want to make money? If so, what does the ROI timeline look like? If not, why do they want to own that piece of equipment? Is it for status, a dream, etc.? Everyone has different reasons for owning equipment, and not all of it is financially motivated.
After going through the gear cycle for years, I can say that equipment is important. It cannot be discounted. I’ve come to a place where I’m fortunate enough that I do not need to own a specific piece of equipment to work in given industry. Companies hire me for my expertise, and the decisions are made on equipment after we assess what they are looking to do and how much they are willing to spend to get there. In some instances, owning equipment that doesn’t take a lot of maintenance and storage space – and would otherwise be rented through a rental company anyway – could be a great source of additional income.