Position Your Business for Growth
You have probably been talking about it for months now. As the economy is showing signs of improvement it’s important to prepare your business to capitalize on the opportunities ahead. Now is the time to gain a market advantage by upgrading equipment and increasing capabilities.
Many businesses struggle when deciding if upgrading equipment is the right move for them. How much will it cost me? How long will it last? When will I see the benefits? These are all questions business owners need to ask when considering an upgrade. In many cases the cost of not upgrading actually exceeds the cost of upgrading- especially with flexible leasing options that are available to today’s business owners.
Your business is growing and pushing at the seams. It may be time to upgrade and increase your existing business equipment. Whether you’re looking at new business gear, business vehicles or new premises, here is some general information about some of the costs and considerations to look at, before you take the step-up.
First, you should consider if this is the right time for your business to expand. The answer has as much to do with market forces as the strength of your business. If prices and interest rates are low, then you may be more confident about taking out finance to grow.
Costs and benefits of upgrading
You’ll have to crunch some numbers and consider both sides of the ledger.
Factors to consider include:
- What increases in sales, production and most importantly, profits, will your new investment give you over the year(s)? Consider this over the projected life of the new equipment or premises.
- Add the amount of depreciation and interest you will be able to claim on the new equipment (getting professional tax advice where you need to), and
- How much do you estimate you’ll receive from selling existing equipment or property?
Balance this against other factors such as:
- The costs of purchase, lease repayments or interest on loans
- What repair costs have you incurred with the current equipment, vehicles etc?How much will you need to put aside to cover increasing costs?
- How much time and money have breakdowns and repairs cost you?
- How much profit is being held back by being in smaller business premises?
Hire-purchasing versus leasing
The main differences between hire-purchase and leasing are that:
With leasing, ownership remains with the vendor and you have the option of purchasing at the end. The leasing payments are generally fully tax deductible. And GST can be claimed as well.
With Hire-purchase, regular repayments are made, with the ownership reverting to you, the lessee, at the end of the contracted period. You will be able to depreciate these assets and may be able to claim interest payments as tax deductions and claim all GST upfront.
Avoid these traps:
When selling old equipment, vehicles etc, don’t forget to pay GST on the sale
If the depreciation rates are low, it may be better to lease.