Construction and earthmoving companies will often face the decision to buy their next machine outright or if equipment hire is a more cost-effective solution.
Say you want to expand and take on new projects – Amazing! But you don't have the machinery in your fleet required to complete the work contract. So, the question is do I hire or buy?
The is no one size fits all in this situation as all businesses are unique and different. So how do you go about this decision and work out the best cost-effective solution when there are so many pros and cons connected to both? In this article, we discuss the factors to consider in the decision-making process. We additionally discuss how financing products can assist with maintaining a positive cash flow and the future of construction.
Factors To Consider
If you are operating machinery a few days a week for several years.
The best option for this would probably be purchasing, as the cost of hiring machinery can add up over time. Also, the is the challenge of availability to hire for the length of the project. Purchasing means your machinery is ready to go whenever you need it.
If you are operating machinery for a few hours a week.
A cost-effective solution may be hiring machinery, as you only pay when you need it. Buying a machine for it to just sit in the yard would only cost money. But do keep in mind hiring machinery can sometimes be 3x more expensive than buying.
Other factors to consider when you hire or buy machinery.
When buying machinery, there will be costs for insurance and maintenance and you may need to hire an operator. When hiring machinery, time is spent on maintaining the upkeep to ensure it is returned in the same condition. There are a lot of other extra charges that go into machine hire. Penalty rates, travel costs, extra attachments & float costs etc
Your Finance Position & Tax Benefits
If you are purchasing a machine, looking at your current financial position is critical, because buying the equipment outright means taking money away from your cash flow. The business's current position needs to be in a comfortable position & have affordability when buying a machine.
When you finance machinery it can help with maintaining a positive cash flow, as the finance is over a fixed term at an affordable monthly repayment. With construction-focused lenders in the market offering, low-interest rates on equipment now is a great time to get funding.
The advantage of funding machinery is the tax benefits available. The current instant asset write-off of $150,000 ends in June 2023. Allows eligible businesses to claim an immediate tax deduction on purchased equipment. The other benefits are being able to claim depreciation and interest.
Another alternative to hiring a machine is a rental finance product. Rental products are typically 100% tax deductible. They also remain off your balance sheet as the asset belongs to the bank. When you reach the end of the rental term, you have the option to purchase from the bank or hand it back.
The Future of Construction
In the 22/23 budget, the Australian Government announced they would continue to invest in projects that create jobs, keep commuters and freight safe and moving, and drive economic growth. They promised a national rolling 10-year infrastructure investment pipeline will increase from $110 billion to $120 billion, a new record high. The future of construction is looking bright.
Construction businesses are maintaining a positive outlook on supply chain issues and rising costs. By planning to introduce more efficient systems and processes and reduce or restructure their cost and debt, by adapting business strategies to increase competitiveness and investing in new vehicles, equipment and technologies to strengthen their businesses over the next 12 months.
If you are looking to be more competitive in the construction industry. Advance Lending Australia can offer your low-interest rates from a panel of construction-focused lenders on machinery finance. We also go beyond the finance and can organise complimentary services on
Marketing
Worker Resources
CFO sessions
plus so much more 🪴 Growth Benefits 🪴
At ALA Our goal is to "make it possible" for all businesses to grow sustainably while maintaining a positive cash flow. You can contact us at 1300 300 770/email info@advancelending.com.au
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