Plan Ahead for Capital Expenditures to Address Equipment Delivery Delays

Chris Bucher, May 13, 2021

Lately my wife and I have been planning a major refurnishing of our home, and so we’ve been doing a lot of furniture shopping. While envisioning the new décor has been exciting, a disappointing part of the process has been learning that anything we buy will take at least three or four months for the furniture companies to deliver.

It’s a sign of our times — and one that relates to the challenges many of you are facing today with your companies’ capital expenditure planning.

 

Plan Ahead for Capital Expenditures

 

Manufacturing backlogs
The pandemic shut down a lot of manufacturing in 2020, all across the globe. That’s put a huge crimp in the supply chain for all sorts of goods and equipment, one that remains in 2021, even as the rollout of COVID-19 vaccines has experts anticipating an economic resurgence later this year.

We’re seeing great demand for replacement capex coinciding with equipment shortages across multiple industries, with the construction sector being particularly impacted.

Here’s what that means for many businesses: As you start looking to acquire equipment to sustain or even increase your ability to meet growing customer demand, don’t be surprised if you encounter serious equipment manufacturing delays and backlogs.

Consider placing orders sooner
The answer, of course, is to step up your capex planning. There’s a danger of overextending the replacement cycle for your business equipment. To avoid that misstep, anticipate delays in the delivery of your equipment orders. Simply put: You may need to place equipment orders sooner than you expected.

Our experts at Hancock Whitney Investment Management are predicting a return to more normal growth levels in 2021, with the recovering economy likely to reach relatively full employment by year end and inflation to remain muted.

Owing to a similar outlook for positive economic growth, the Equipment Leasing and Finance Association is expecting capital spending to rise by 7.8% in 2021. The association is projecting U.S. businesses, nonprofits and government agencies to spend more than $1.8 trillion on capital goods or fixed business investment.

To take advantage of these positive forecasts and to stay competitive in your business, talk to your banker and equipment suppliers to gain insights into possible equipment backlogs and adjust your capex planning appropriately.