There comes a time for every growing business where you need to invest in bigger premises, new business equipment, more business vehicles or to expand your staff.
This can be stressful financially and can impact the all-important cash flow, so it’s important to look at all the costs and consequences before you take your business to the next level.
Do the figures add up?
Before you decide to put more money into your business you have to know what the results of the increased investment will be, or to put this another way, will the benefits justify the increased spend.
Take a look at:
- How much will your business’s productivity and profits increase if you invest more? You will need to work this out over the term of the new business lease or the length of time you will use the new equipment.
- See if you will make any money by selling existing equipment or property that can go towards the upgrade.
- Factor in how much you will make out of depreciation and interest on new equipment.
- The costs of purchase, lease repayments or interest on loans.
- How much repair and maintenance costs the current equipment, vehicles etc. are costing you?
- How much will need to be 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 or having limited staff?
New technology needed
Penny who runs a picture framing company in Sydney, was at capacity working in her shop when she made the call to bring in some new technology.
“I decided to invest in some state-of-the-art equipment from Switzerland that does all the cutting for the framing, so it doesn’t have to be done by hand.
It cost me thousands of dollars and I had to pay to ship it here, but I can work twice as fast now and I can write it off to tax.
I also get more time to work on other parts of the business.”
Different ways to get finance
If you don’t have the money to buy new equipment or vehicles outright, you may choose to get a loan, or hire or lease. Each will have different payment structures and outcomes.
With a loan you will have to shop around for a competitive interest rate and see if you can afford repayments.
Also check that the length of time it’s going to take you to pay it off is realistic – or whether the technology you’ve bought will be obsolete by then.
An unsecured loan is a loan that's issued and supported only by the borrower's creditworthiness, rather than by any type of collateral.
It can also be called a signature loan or a personal loan.
Borrowers generally must have high credit ratings to be approved for certain unsecured loans.
Special offer for NRMA Business Insurance customers
To help you and your business NRMA Business has recently partnered with Prospa, the leading online lender in Australia offering unsecured business loans between $5,000 and $250,000 at competitive rates.
All eligible customers will also receive a $250 gift voucher on their first loan approval (terms and conditions apply).
To find out more about the offer visit nrma.com.au.
You might also consider hire purchase, where you make regular payments and at the end get to own the equipment at the end of the contract period.
You'll be able to depreciate these assets and may be able to claim interest payments as tax deductions and claim all GST upfront.
If you go for leasing, you can usually have the option of purchasing at the end, or can just choose to lease a newer place or technology.
Leasing payments are generally fully tax-deductible. And GST can be claimed as well.
There can be tax benefits for small businesses who buy assets up to $20K. Find out more at the ATO's website.
Timing is everything
Even if your business is going from strength to strength, the choice to expand should also take into consideration what’s happening in the market. If the economic outlook is good, and interest rates and prices are low, then you will be more likely to be in a better position to take on increased costs or debt.
The choice to upgrade your workplace or equipment needs careful consideration.
Talk to your accountant or financial adviser about the best approach for you and what the tax implications of different approaches may be.