Every item of equipment that you acquire for your business represents an investment of your business capital. Taken a step further, an item that is not currently being used represents capital on which the current return to your business is zero or even negative (if property taxes and insurance costs attributable to the item are taken into account). For this reason, you want to be sure to limit the amount of unproductive assets that your business owns.

Once you've committed your valuable time and money to acquiring equipment for your business, the last thing you need is to have the equipment damaged or destroyed (whether by accidents or acts of nature) stolen, or lost. In a very real sense, your equipment represents relatively long-term investments that you have made in your business. And, just like any other investments you make, the economic investment in your equipment needs to be protected from significant risks. Such protection can take two forms: protecting the equipment itself (such as by security and fire-protection measures) and protecting the value of the equipment by obtaining insurance.

Very few items of equipment, if any, have an infinite working life. Well, maybe you could expect a paperclip to last forever, but then again it would probably get lost at some point.

Although our current discussion focuses on the use of property insurance to protect against losses that may occur to your business equipment, the same policy will also likely cover your real property and buildings, inventories, and other business assets. Furthermore, you should view your decision to secure property insurance for your equipment as being just one element of an overall insurance plan for your business (this plan also may include liability insurance and life and health insurance).

In home offices and small offices where a computer is used frequently, an improperly arranged workstation can be a source of major discomfort. In fact, the Occupational Safety and Hazards Administration now studies office and computer ergonomics and is concerned with the consequences of long-term exposure to poorly designed environments. They can contribute to such physical ailments as general fatigue, irritated eyes, and soreness or pain in the wrists, neck, shoulders, legs, and back.

There is no one right way to design and equip a workspace. What works for someone else may not work for you. However, we suggest that you keep in mind what we call the "PEC" (Productive, Efficient, Comfortable) priorities. Our examples apply specifically to office-type settings, but can be adapted for almost any business facility.

Two key factors determine whether equipment is being used efficiently. The first is time, the second is money. Unless your office equipment's layout helps you to save both time and money, it is not efficient. As you strive for efficiency, however, be sure that you don't compromise your equipment's productivity.

When we're talking about productivity, what we're really asking is does the layout and organization of your office equipment enable it to get the job done? To give you a simple productivity problem, a solar calculator won't do its job if you use it in a dark corner of your office. Getting productivity out of your equipment is a bit different from using equipment efficiently, which is more concerned with saving you time and money.

Once you've acquired your equipment, you can proceed to put it to work in your business.

As you explore your options for equipping your business, don't overlook the possibility of using items that you already own. Putting items such as your cars, office furnishings, and computer equipment to work in your business, even if only on a temporary basis, can free up dollars that you would have otherwise spent on acquisition costs. Furthermore, you'll enjoy the tax benefit of claiming depreciation deductions with respect to the items that you convert to business use.

Unless your business has unlimited cash reserves, chances are that at some point you're going to have to finance an equipment purchase. In fact, even equipment that you purchase for cash is in one sense financed, if you end up borrowing to meet other needs because the purchase depleted your working capital. So, you really should view equipment financing as just one piece of your overall financing strategy for your business.

As you plan your equipment purchases, keep in mind that Uncle Sam will help you out by letting you deduct some or all of the equipment's cost on your federal income tax return. Your state tax agency may also provide some tax-saving incentives.

Unless you're in the position of having had a vendor immediately agree to sell you the specific equipment you want for the price you're willing to pay, you're going to have to negotiate. If you've gone through the initial exercise of determining what you want and need and what you're willing to pay for the equipment and its various features, you'll have a head start on the process. This is because you'll have an idea as to which features or conditions are most important to you and which you may be willing to concede to reach an acceptable compromise. At the very least, establish in your mind what your minimum requirements are, and be prepared to walk away if you're not comfortable that the deal being offered will meet your needs.

As you shop around for equipment deals, don't overlook the used equipment market. Depending on the item, you may be able to purchase used equipment for a fraction of what you would have paid if the equipment were new and without any loss of functionality. Purchasing used office furnishings, in particular, can lead to big savings.

If you're going to invest your precious capital in purchasing equipment, you want to be sure that you do all you can to get the best deals for your money. You can go a long ways toward achieving this goal by simply taking the time to comparison shop. But there are also a few other issues to consider:

Under a typical equipment lease, you generally are entitled to currently deduct your rental payments if you use the leased property in your business. However, you need to be aware that, in certain situations, the IRS may deny rental deductions if it audits your return and concludes that your lease is in reality an installment or conditional sale. To understand why the IRS would even care whether you characterize your acquisition as a lease or a purchase, consider the following example:

The main advantage of leasing is that your initial outlay of cash to gain the use of an asset is generally less for leasing than it is for purchasing. However, perhaps the main disadvantage of leasing is that you usually end up paying out more over the asset's life than you would have paid if you purchased the asset. How do you reconcile these two factors? Well, one way is to do a mathematical analysis of your net cash flows that would result from leasing and from purchasing.

The disadvantages of leasing your equipment and other business assets include the following:

Let's assume you're faced with the following lease-or-buy decision. You can purchase a $50,000 piece of equipment by putting 25 percent down and paying off the balance at 10 percent interest with four annual installments of $11,830. The equipment will be used in your business for eight years, after which it can be sold for scrap for $2,500. The alternative is that you can lease the same equipment for eight years at an annual rent of $8,500, the first payment of which is due on delivery. You'll be responsible for the equipment's maintenance costs during the lease.

Our advice for finding a good leasing arrangement is really no different from our advice on purchasing in general. The first step is to determine as nearly as possible exactly what you need and how much you're willing to pay. Once that's done, you need to devote some time to shopping around to find the best deal for your money.

Nowadays, you should view leasing companies as potential suppliers for virtually all of your equipment and other tangible business assets. You should have little trouble finding companies willing to lease or rent motor vehicles, office furniture, store fixtures, computers, communications devices, manufacturing equipment, and other items you may need.

Leases and rentals are contractual arrangements by which the owner of property (the "lessor") allows another person (the "lessee") to use the property for a stated period of time in exchange for cash payments or other compensation. There is no real legal distinction between a "lease" and a "rental." In practice, however, rentals generally are considered short-term arrangements (a day, a week, a month), while leases are arrangements for longer terms (a year or more).

So you've concluded that your business really does need a particular item of equipment or other fixed asset. What next? Well, before you rush out and spend some of your valuable capital, invest a little time considering how you can best meet that need. There are basically three alternatives:

The advantages of leasing your equipment and other business assets include the following:

So, you've acquired your computer system and started the process of computerizing many of your daily tasks. If you are like many business owners, you very well may find that the system becomes an integral part of your business operations. You may even begin to wonder how you managed to survive without a computer. (And, if you haven't properly set up your computer workstation, how you'll possibly survive the physical ailments you've encountered while using your computer.) The more important question, however, is where would you be if you should happen to lose the use of your computer or the information it contained?