A client texted this morning and asked if we could have a quick call…
They have an opportunity to purchase a piece of equipment for their business and wanted my advice.
An overview of the decision to be made:
- The equipment is used and in great condition as verified by an objective third party.
- It would save them about $7,000 over buying new and it was on their list for this year.
- They’re currently cash-strapped due to aged accounts receivable from new clients (we’ve remedied this for the future) and they’re going to owe around $20,000 in taxes.
- They’re not in a position to take on debt.
- The equipment is something that will be revenue generating almost immediately.
- It will take about $1,000 to have the equipment fully operational.
They asked for my thoughts on whether or not to buy.
Rather than answer, I asked this counter-intuitive question“If you purchase, what’s the worst case scenario?” and then we brainstormed:
- Outstanding accounts receivable never gets paid and they’re out over $60,000.
- No new clients sign up in Q1 (typically their slowest season) so they’re going to have to live off existing bank account balance.
- The money doesn’t come in to pay 2023 taxes.
- The new equipment doesn’t bring in as much revenue as anticipated.
We went through each of the above and came up with a realistic (key word!) plan of what to do if any/all of them happen.
Once there was an actionable/doable plan for the worst case scenario, anything better than “worst case” is totally doable.
End result? Client is working up a few numbers and will likely be purchasing the equipment.
When next you’re faced with a decision, in addition to the best case scenario, work out the worst case and see if it makes sense in that scenario.
Photo by Ketut Subiyanto