The big picture includes the total cost of a solution, above and beyond the thing itself— services, maintenance contracts, and all those extra pieces that turn the piece of equipment from a dumb box into a smart, connected machine. It also includes understanding the opportunity cost. Will this machine replace a less efficient machine? What happens to my business if I don’t have this equipment? And if I do have it, what other costs are involved with running it?
When considering adding assets, leading business owners say TCO—total cost of ownership—is clearly part of the transaction’s bottom line. Forecasting everything, right down to the bank conveyance, they pretty much know all the costs for the asset. They know the cost to staff it. They know the cost to maintain it, etc. They’re forecasting the full P&L, all capital investments they make.
Emily Zwach of American Financial Partners, provides an example of how TCO can influence equipment decisions: “An experienced business owner will look at assets that are five years old, and will say, ‘Our maintenance costs last year on these assets was $10,000, and we were averaging another $5000 in operating costs. If we get a new asset, the warranty will cover the maintenance costs. Therefore, those costs will go away, and we’ll have a payment of $1,900, but we’ll incur far lower operating costs.’”
These days, maintenance costs are just as likely to include software upgrades as they are to include oil changes. When a company is installing thousands of dollars of equipment, that’s great. But understanding the software needs, maintenance and help desk support system just begin to round out the TCO.
Technology is changing the face of financing decisions, especially with things like copiers, information technology, or medical equipment as software and services are becoming a bigger part of the deals. But there is more software and services within all kinds of equipment. There are the diagnostics that you use to measure performance of your trucks and trailers. There are telemetric devices that you put in your fleets of cars. Even for something as basic as machine tools and printing presses, you are finding front-end systems that run them. People aren’t just standing at the machine and cranking things out anymore. They run it via a control network.
As a result, smart borrowers now have the ability to bundle all of those things into a transaction and offer our customers a seamless product, with financing and servicing all on the same invoice. Equipment-driven financiers offer an even easier solution as their depth of equipment knowledge makes the “bundling” of TCO an easier process.
At AFP, we help small businesses find the balance of TCO for their business. Across a wide variety of assets and industries, count on AFP to help you dream big. Let’s talk.