Driving growth: Equipment upgrades and innovation

Recently ranked as the third-best state economy by Business Insider, Colorado continues to enjoy a favorable business environment. In Denver, we’re seeing a number of small and mid-sized businesses investing in additional equipment to keep up with a growing demand for their products and services. Locally based manufacturers are switching to automated equipment in order to streamline existing systems and processes. Thanks to a growing economy and favorable borrowing terms in 2015, many small and mid-sized companies are turning to equipment financing to drive growth. Here are the factors driving the trend – and how Colorado companies can prosper.

The Equipment Leasing and Finance Foundation predicts six percent growth in equipment and software investment in 2015, which they say will be a banner year for the $900 billion annual industry because of the strong fundamentals in the overall economy.

Equipment financing does more than just provide a vehicle for companies to add needed equipment. Financing options allow companies to preserve precious cash, allowing that cash to be redeployed in other areas of the business. “Cash is the life blood of a business,” says Bob Lee, Business Banking Equipment Finance executive, Bank of America Merrill Lynch. “You can use cash in a dozen ways to grow your business. The last thing you want to do is lose flexibility by locking up your cash in your equipment.”

A well constructed financing also considers the federal income tax implication of equipment acquisition, allocating the tax benefit of ownership to the most tax efficient party. This can help drive down the “after tax” borrowing cost to the equipment user, a paramount consideration for small to mid-sized businesses that are competing on all fronts for customers.

What is really exciting are the recent innovations in equipment speed and efficiency. These innovations continue to help drive bottom-line growth for many companies, through enhanced productivity and processes. In particular, we are seeing solid growth in the transportation, food and beverage and manufacturing sectors, though the basic principles of process improvement can be applied to many other types of companies.

New Equipment Drives Cost Savings

For many companies, acquiring new equipment can result in a quick return on investment by reducing direct cost. For example, according to energy.gov, as recently as five years ago few would have thought achieving 9 or 10 miles per gallon of diesel fuel was possible for a long-haul tractor-trailer, but recent innovations in internal combustion engines, aerodynamics and weight are making this a reality. Fuel is often the greatest expense for haulers, so a dramatic increase in efficiency can drive a significant return to the bottom line.

Other upgrades include computer controls and equipment that uses less electricity or water, resulting in significantly lower utility costs. According to the U.S. Energy Information Administration, the total consumption of energy by manufacturers, for all purposes, declined 17 percent from 2002 to 2010.

 

Innovations Drive Greater Productivity

Since the time of Henry Ford, business leaders have focused relentlessly on driving greater efficiencies in their processes, and that is true today. In the last few years, equipment innovations are changing the face of assembly lines to construction sites – which can add up to increased productivity for employees and greater revenue for companies.

In the manufacturing sector, increased automation is reducing costs, and freeing up employees to troubleshoot problems, work with customers, and manage other tasks. This is a positive development for the manufacturing sector, which continues to struggle to find workers with the right skills. Thanks to greater automation, these companies can also hire and train workers with higher skills to add value.

The construction industry, which is also experiencing a revival, is also seeing a number of more energy-efficient and time-efficient products. These products range from the huge – think more energy-efficient heavy equipment – to the small: new drill bits and other hand-held tools that are cleaner and faster. Even minor modifications in the design can be a potential game-changer for contractors in the real-world because it will allow them to do their jobs faster and better.

Innovations Drive Growth

More productive equipment not only reduces cost adding to bottom line growth, new equipment can also grow top line revenue. Business leaders in it for the long-run know they must put the processes and people in place to drive more revenue through product innovation. And this is where today’s equipment upgrades can really provide a return, from makers of food and beverages to energy companies.

In the last several years, changing consumer tastes and targeted marketing have opened up new markets for goods. This is truly evident in the craft brewing industry, where the success of independent brewers is sparking more success. Even though craft beers represent just 7.8 percent of the beer market, The Wall Street Journal pointed out craft beers are taking even more market share from the big brewers because of a shift in tastes.

For many years, however, the smaller players were at a disadvantage because they could not access the equipment needed to scale up their operations. But today, thanks to innovations, craft brewers can purchase or lease a high-speed canning process – equipment that used to be available only to large-scale bottlers. As a result, they can ramp up their operations to more effectively drive higher revenue.

Looking ahead

The new generation of innovative equipment and products is driving top-line and bottom-line growth for many industries. And while business owners may initially balk at the price tag of automation, smart small and medium sized business owners realize that new equipment acquisition translates into more opportunities, more markets and more products. Business owners should check in with their bankers to find out what sort of financing is available to them as they work toward their business goals.