President's proposal could boost equipment sales

A key element of President George W. Bush's proposed economic stimulus plan is increasing the expensing limit on new equipment purchases from $25,000 to $75,000. The question is, will it drive the kind of capital investment that economy watchers say is vital to recovery?

"Absolutely," said Brian Peltier, general manager and vice president at Corporate Business Systems.

"With small business owners, they have to look at every advantage they can when looking at larger purchases. For most small businesses, a $50,000 to $75,000 investment in their business is a big decision for them. The ability to depreciate that out quicker and the tax advantages of buying that equipment," is a big incentive, Peltier said.

Erik Crane, president of Copy Products Inc., is hopeful, but said that the expensing option is only part of the picture.

"It will really depend on how business does this year. If business is down overall, and they don't have a lot of cash on hand, they're not going to spend 20,000 or more just to get a tax write off," Crane said.

CPA Lisa Officer, a partner with the firm of McCullough, Officer & Co., said the expensing option, "for small business, it makes a big difference on timing. If they are running close to the end of the year and are over their limit a lot of times they'll hold off and wait until after Jan. 1 to make additional equipment purchases so that they can get the full deduction, or the full write-off of the equipment."

She added, "Small businesses will be eager for it to happen. Any increase (in the expensing limit) would be a nice change."

The industry

While the pace of business has slowed overall, growth is still occurring locally.

"It's been a little slow in our industry for the last probably 16 months. You can go back to 9-11 and maybe a little bit prior to that with the slowdown," Peltier said. "We're fortunate that it's been very minimal here. We're actually growing, and we've just added two more salespeople."

He added, "We have actually seen about a 5 percent to 7 percent sales growth over the last six months, and that trend seems to be continuing."

Crane reported a similar experience.

"As far as Copy Products is concerned, we had our largest first quarter and second quarter that we've ever had, and then third quarter was a little soft. I believe that is a result of the softening economy across the country. I think it took that long for it to get to our area, the Midwest, but specifically to the Springfield area."

But while the third quarter of 2002 was soft, "fourth quarter was right back up and our biggest fourth quarter we've ever had," Crane added.

Copy Products sales growth was about 8 percent for 2002. "As far as total revenue we've seen an increase last year of around 12 percent, and over the course of the last 10 years we've averaged 10 1/2 (percent) to 11 percent growth every year." For 2003, however, the company has set a more modest goal of 7.5 percent.

Maintenance

For Crane, and other dealers, maintenance contracts are playing a larger role in overall revenues.

"There's been several of our customers that have had to make the tough decision to hang onto equipment and invest in maintenaning it versus maybe stepping into a newer product," Peltier said. "Financially they just weren't able to make that commitment."

Crane said his company has seen an up trend in maintenance contracts.

"Instead of saying OK, I'll spend $5,000 to $10,000 on a new machine,' (companies are saying) I'm going to spend $1,000 and get this machine upgraded, get it cleaned up almost to the point of refurbished, and then I'll spend the $1,500 on a maintenance agreement."

He added that revenues from maintenance contracts "just went through the roof" in the second and third quarters of 2002.

Recession proof?

"In our industry, I don't want to say we're recession-proof because then we'll have a problem, but every business that's going to stay in business has to have the ability to communicate its ideas," Crane said, and whether that's done on hard copy, via fax or scanned image on e-mail, businesses need machines to communicate.

"There's always going to be a need for our equipment as long as we keep up with current trends and diversify and don't focus on just one thing but give our customers lots of options," he added, "As long as there are people in business anywhere, there's going to be a need for the office equipment dealer."

On the president's proposal, "the main thing I hope that it creates is a more productive environment for small business to operate (in) and a more competitive environment," Peltier said. "They can upgrade their network or upgrade software or add infrastructure that makes them more competitive."