A capital equipment list is a written compilation of all of the equipment you will need to operate your business. If you’ve already written a business plan, this may seem like a superfluous or redundant item; however, having this list may help keep you financially in line as you embark on your new business.
As a small business owner in the startup phase, develop a list that includes all your equipment. (You can always remove items later.)
Capital equipment is movable. It is not a permanent part of the building. For example, permanent bookcases built during the construction of your office are considered part of the property. However, if those same bookcases can be moved to another location — without reconstructing the wall of which they are a part — the bookcases will be considered capital equipment. Similarly, the physical building in which you place your business is not capital equipment but “real property.”
Capital equipment must also have a lifespan. Typically, this is applied to any item that is used one year or longer. This time length is sometimes industry dependent, however.
Once you start creating this list, you may be amazed at the complexity of what you’ve already accumulated and what you still need to purchase, lease, beg, or borrow in order to run your business.
For items you already own, assign a value to them. Typically, this value is not the replacement value, but the depreciated value. If you don’t know what the depreciated value is, include the original date of purchase and the purchase price.
For financing purposes, it’s a good strategy to show what you have personally contributed to the start up of your business. If you’re not willing to invest in your business personally, why should someone else?
You will also need capital equipment information for accounting purposes. Many new companies don’t realize when starting out that they may need to depreciate equipment over a certain period of time — and this time period has been known to change.
Computers are a good example of this. They often lose operational value before financial value. And, with the decreasing purchase price of computer and computer-related equipment, much of this equipment is now considered expendable. It is no longer depreciated but simply treated as an expense.
In developing this list, name major and minor purchases, model numbers, and purchase prices. Your accountant or accounting program can help you organize this information.
Not only is this information necessary for your business plan (and potentially essential for financing), it is critical information for your insurance provider in case of a loss or theft. Consider photographing or videotaping a record of your equipment, too. Store this information offsite, perhaps in a safety deposit box.
Just look around — what do you see that would qualify? Your computer, monitor, printer, scanner, software, desk, chair, bookshelves, telephone and answering system, fax machine, and conference room table can all be included on your capital equipment list. And this is just for a small in-home setup.
What if your business is equipment intensive? Manufacturing concerns are heavy on capital expenditures. The majority of your financing may be targeted for these purchases.
Should you buy or should you lease? And if you do the latter, what terms should you negotiate? These are good questions to discuss with your accountant. Even if you feel confident that you can maintain your financial records once your business gets going, it is prudent to invest in time with an accountant during the startup phase of your business. He or she may provide you with some options that you had not previously considered, putting your company in a stronger financial position, especially in regards to capital equipment and operating expenses.
As a general rule, capital equipment lists don’t include expendable items, such as pens, paper, other office supplies, or your daily intake of chocolate. Nevertheless, these items are expenses, so you will want to keep track of the money spent on them when you calculate your bottom line.
Check out Write a Winning Business Plan for more helpful advice on what your business plan should contain.