- 1). Determine the cheapest method of financing your equipment. This can be through your line of credit, a bank loan or through a capital lease. Each of these will have different monthly payments.
- 2). Estimate the annual maintenance costs. This is insurance, general maintenance and any repairs. The best way to do this is to use an insurance policy and budget a little on top of it for day-to-day, relatively cheap repairs.
- 3). Factor in labor. This is regardless of whether you are going to run the machine yourself or hire someone to do it for you. After all, if you save $15 an hour by operating the machine yourself, you are actually costing yourself the same amount. This is because you could be making that same amount of money operating the same machine for someone else; your time has value.
- 4). Subtract the tax advantages of depreciation. You are allowed to deduct the depreciating value of any business equipment you own from your taxes.
- 5). Compare the total annual cost of purchasing equipment with the cost of contracting. If it is lower, then you should purchase the machinery.
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