When should I update old equipment?

By Mary Lou Paoletti, CPA, and Cynthia R. Wutchiett, CPA, financial editor

When you dream about new equipment, also consider replacing existing units that no longer meet your needs. As you compose your wish list, ask these questions to determine whether an item is still efficient:

1. How much do I spend on repairs? It's easy to lose track of money spent repairing equipment. Keep a log noting the dates and cost of repairs. Review this log when developing your annual equipment budget.

2. Which equipment has fully depreciated? Has some equipment reached the end of its economic life? Not all fully depreciated assets should be replaced, but compare the value of this equipment with all other units. If you no longer use equipment, remove it from your asset list and notify your financial advisor for proper tax treatment.

3. Is the unit efficient to operate? It's easy to overlook the gradual inefficiency of some equipment. For example, a computer that was high-tech three years ago may be slow and inefficient by today's standards. Ask staff members to calculate time spent waiting for a computer response, and use your average hourly rate for the position (including taxes and benefits) to estimate costs.

4. Is this equipment causing revenue loss? This is one of the most compelling reasons for replacing equipment. If an older unit makes you hesitate to recommend a procedure, you're losing income. Estimate how many times you avoid a procedure each week, then multiply this by the fee for the service. For example, if your radiograph machine doesn't have an automatic processor, you may opt to treat symptoms rather than recommend a radiograph as many as five times a week. If you charge $71 for each radiograph, you're losing $17,700 in revenue annually.

5. Is my equipment obsolete? Equipment becomes outdated for many reasons--technology advances, supplies and repair parts aren't available, or you no longer offer this service. Many practices must upgrade or replace computers this year to avoid Y2K problems. Have you asked your computer vendor about Y2K compliance? Upgrade your system before it's too late.

Remember, replacing outdated equipment may benefit your practice more than adding a new service. When planning your equipment budget, include upgrades or replacements to machines you use daily.

August 1999 Veterinary Economics