Hire a CFO Edmonton | Should Businesses Buy Used Vehicles & Equipment
Hi and thanks for joining us for another episode of Asparo’s CPA. Uh, today we’re talking about should business owners buy use vehicles and equipment here with y’all way again today. They’re already thanks her for being here today. How are things going lately for you in T for time? It’s good, crazy busy, but we’re surviving. Excellent. So the uh, the quote here that I have to start off today is a Robert Kiyosaki, the author of Rich Dad, poor dad. She used this one before. Good debt is a powerful tool, but that deck can kill you, which is important to consider when we’re, we’re buying equipment and all the time we’re buying equipment, vehicles on credit. So the statistic is 50% of all businesses are out of business in five years annual, roughly a third of those go out of business because they run out of cash. And the story that we have or you know, business owners that can’t afford to pay four or get financing for the equipment that they need to do their jobs efficiently.
So you only, what are the questions do you think that these business owners should be asking? Well first, why should you plan on financing equipment rather than operating capital? Yeah, great place to start. The generally the options for financing equipment are significantly more and better, more favorable, uh, for financing equipment than it is going to be for financing, operating capital. Uh, there’s not a lot of options out there for operating capital. They’re harder to get, harder to come by, uh, less likely that you’re going to get approved. So if you’re in any sort of business or any sort of circumstances where you think cashflow is going to be an issue and you’re, you’re going to have to buy equipment, finance that equipment, you know, it’s a significantly easier to finance that equipment. Hire a CFO Edmonton, you know, on the initial purchase and try to get financing later once you’ve run out of money for operating capital around payroll, do advertising, wait for receivables.
Okay. Um, well, what type of loaning candidates is specifically to help small business owners then? So the Canada small business financing loan, we’ll lend you up to $350,000. You can get approved for up to $350,000 essentially to buy. You don’t want to equipment, vehicles, leasehold improvements, but she didn’t want, Jay were talking about vehicles and equipment, so it’s up to $350,000 and the banks are more apt to give you that loan when otherwise you’d be a higher credit risk because the federal government is effectively backing that loan. So they’re acting as a guarantor and you’re still on the hook for the personal guarantee these days. Um, but you know, the federal government is backing in to, so the banks are more agreeable that they’ll lend to you and when otherwise maybe they wouldn’t give you a conventional financing. Uh, well, how does this compare to manufacturer, uh, financing or leasing options?
Generally it’s, it’s a good baseline. So I mean, right now they will, the Canada’s small business financing loan is prime plus 3%. You know, we’re just shy of 4% on primary now. So we’re talking four plus three, 7%, Hire a CFO Edmonton, which is comparable to, I would call it, you know, grade a leasing opportunities. Uh, so, uh, you know, sometimes you can do better on manufacturer or financing or leasing, but for the most part that’s as good as you’re going to get, um, is that 70%. So oftentimes, especially the leasing options are going to be more expensive. They’re going to be a fallback position. So, uh, you know, we can get, you know, 10, 15, 20% if we see huge options, right. The, to get it, they’ll give you financing through the manufacturer or through a leasing company that they recommend, but it’s going to be far more expensive than the chemists small business financing program at 7%.
Okay. Um, well how do the manufacturers then and leasing companies attempt to disguise these crates? Yeah, so often the manufacturer will come with a ratio and they say, oh, it’s 5% or, and it sounds fantastic. And it would seem like, why would anybody go after the Canada’s small business financing program at 7%. Often that financing rate or the, the leasing rate that they’re quoting you is, I want to say fabricated. So they’ll put things like, uh, you know, application fees in there. And the big move is they disguise the price. So it’ll be, you know, if you buy a cash, it’s $30,000 and if you finance it, it’s $35,000, but it’s at 0%. That’s not really 0%. They just charge you an extra $5,000. So, um, they really tried to, you know, play with the fees associated with it or they actually just change the price.
So it’s one price if you buy it or get your own financing, Aka the kind of the small business financing program and that’s a completely different price. If we find that that through them and that’s what helps them, you know, it’s an increased price. So that’s what helps them, you know, recover that, that rate. So you don’t want to hear, uh, financing rates, um, quoted by manufacturers or leasing companies. Might, my brain shuts off. I don’t even listen to the rate. I just want to know how long is the term and what are the payments and what would this piece of equipment be if we purchased it in cash, what’s the best price we can get? And then we just calculate our own rates because we tune out their interest rate because we know it’s, it’s often a disguise with some of those factors. Okay.
Well talking about the equipment, um, how does the h of the equipment or a vehicle affect the length of the loan? Yeah, so sometimes you are thinking that they’re going to buy used equipment because it’s going to be less of a strain on cashflow. But often you use equipment, used vehicles. We’re not going to have as long to pay back a loan. So if you go to a bank and we try to, you know, uh, finance a piece of equipment, a piece of used equipment and that’s already, let’s say five years old, the bank views that it has a useful economic life of 10 years, they’re only getting, give you five years to pay back that loan. Whereas if it’s a brand new piece of equipment or vehicle, then they might give you seven to 10 years to pay back that one. So, even if the purchase price is higher, that monthly payment that we’re going to be looking at is lower because you have a longer time period to pay back that loan. So often the life of the equipment, the newer it is, the longer they’re going to give you to pay back the loan and the lower the payment will be. Hire a CFO Edmonton, so it’s, it’s, that’s what can happen.
Okay. Um, well can you monthly payments on new equipment and vehicles then be higher than new ones?
Yeah, he can, he can completely switch. Yeah, for sure. So, I mean, you could have a, uh, uh, you know, use a vehicle or a piece of equipment and maybe it’s, you know, $30,000 to buy it used and it’s $40,000 to buy it new. But if you buy it new, you’re going to get 10 years to pay it off. And if you buy it, use, you’re going to get five years to pay off. So that, that actual, that use monthly payment, although it’s, it’s cheaper, the purchase price, that monthly payment could actually be bigger then the, uh, the same, uh, same payment on a new piece of equipment.
Oh, okay. That’s good to know. Hire a CFO Edmonton, how does the increased maintenance and fuel costs affect monthly cashflow?
Yeah, so often when, when you’re talking in both used equipment or used vehicles, that maintenance and then, you know, fuel costs, the cost to operate the equipment, it starts to go up right when it’s new, generally doesn’t break down that that much. It’s, you know, a little more fuel efficient as equipment ages. It’s going to cost more to maintain it. And again, we’re going to have difficulty in getting operating capital to fix equipment when it breaks down. They want to finance the purchase of equipment. They don’t want to find out. So, you know, cash short falls that relate from operations, you know, in terms of the banks and the finance companies. So, um, that’s a real important consideration that we can’t just consider that monthly payment. We have to consider, hey, what’s the likely fuel costs or maintenance costs? On a used piece of equipment per month versus what’s the fuel and maintenance costs on a new piece of equipment every month. Then you don’t add that to the payments to start getting a no real number that, you know, what’s the actual monthly cash outflow here because it, it, it might not be the cheapest used piece of equipment. Sometimes the new piece of equipment is going to have a, Hire a CFO Edmonton, you know, less of a burden in the monthly cashflow.
Okay. Well, um, how can a less reliable vehicle Sydney equipment increased wage costs or steal your time then?
Yeah, so you, this can be a bit of a switch for business. I’m going to see if they think about in their personal life, you know, a lot of personal financial gurus, they’re gonna say, hey, buy a piece of buy a used car. Um, and it’s going to be know more of a value for you because the, the time involved in getting that used car fix and bringing it to the shop, you don’t, might not be a big deal in your personal life cause it’s, it’s one car. You don’t have anything else to do. And it was a little bit of strain on your personal time, but not much. But once you have a business, you know, time is the most important capital that you have. 168 hours. It’s more important than cash. I do time here and cashier, Hire a CFO Edmonton, there’s always ways to get more cash, but there’s never a way to get more time.
Hire a CFO Edmonton, and that time can be eaten up in, you know, you maintaining that equipment and you know, you’re out there, you know, uh, getting your vehicle fixed instead of doing the estimate for a new job because you’re broken down. Um, you know, or your, your entire production is shut down because that, uh, uh, that piece of equipment is broke down. Um, so, and that can have a huge cost. You can have guys that you’re having to pay on payroll sitting around all day or, or, or working, you know, less effectively all week because they’re missing this piece of equipment. So, Hire a CFO Edmonton, you know, it’s in addition to the monthly payment to buying it and the maintenance costs and the, uh, uh, fuel costs, we also got to look at what are the downtime costs because that those are going to increase as it gets, as the equipment gets older and it’s going to be a real cost.
You know, there’s a lot of, you know, big, successful companies out there, you know, for example, in vehicles that they’ve, they’ve run the math on, you know, hundreds or thousands of data points and realize that they’re dumping their vehicles when they get to be seven or eight years old and in between 150 and 200,000 kilometers. Um, because they just run the math and they realize that that’s the best time to offload them because they have to pay people to fix them and oftentimes they have to pay people to bring the vehicle to the person who’s going to fix it. Hire a CFO Edmonton, so yeah, it’s a big consideration. Is the time involved with used equipment as well? Absolutely. Uh, well, you mentioned payroll and paying people. How can you use equipment and vehicles affect your brand and employee satisfaction? Yeah. Um, so I mean, you know, what’s it gonna look like when you show up to that job site or a customer comes to your place of business and you’ve got this broken down old piece of equipment.
Hire a CFO Edmonton, you know, we pay so much money to, to, to get the lead in the first place to get the opportunity with the customer and then we rattle their conference with a, you know, an old piece of equipment. They’re wondering if this guy is serious or not do. So that’s also a big consideration for sure. Hire a CFO Edmonton, what makes business owners as spent too much time in equipments in vehicles? So I think it’s, yeah. Spend too much. It would be like, in terms of, uh, uh, time, you know, it’s, they get older and they just don’t replace them at the right time. And then in terms of money, like often, even when we’re getting to business owners who want to acquire new equipment, sometimes it starts to become an ego purchase or an emotional purchase. So, you know, we’re sitting here, we’re counting the value sometimes of buying new, sometimes it’s better than being used, but sometimes going overboard on that new, you know, if you’re a contractor and you need a four wheel drive truck with a crew cab, there’s, there’s a lot of options from all the manufacturers out there to about 40,000 bucks and it’s easy to buy, you know, something that’s $70,000 because it has a lot of their seats and a air conditioning and the, you know, bigger infotainment screen and fancier speakers and it looks nicer.
That’s not what the idea is either. And the customer has no idea what’s going on inside there. There’s just no as this thing rusted out and the guy drives to the job site out of the deck, goes look on it. Um, how does it look professional, you know, a lot of the bells and whistles and options and vehicles and equipment are, that’s what starts making used equipment, new equipment, not the preferential choice. If we look at, you know, it was something reliable, functional, it’s going to get the job done. That’s at the beginning of its useful economic life cycle. That’s an entirely different discussion. Then you know, the, the vehicle or piece of equipment with all the bells and whistles, that’s the most expensive one. Money can buy. Uh, you know, that, that’s generally the, the, the other side of that spectrum where you’ve gone too far, right.
Treat your style and not too much. That’s right. If you don’t use a piece of equipment or vehicle, then often that often can, sorry, if you don’t use a piece of equipment or a vehicle that often can be a better, it can be better. Hire a CFO Edmonton, so let’s think about the piece of equipment. Let’s say you’re a general contractor and you need a dump truck. Uh, you know, big, uh, you know, five ton truck to drive all the demolition stuff to the dump. But this truck, you probably use it once a month. You know, it’s not your daily driver. It’s not the one you’re going back and forth the sites on all the time. But at the same time, if you rent or pay someone, if you know by the time you make two trips to the dump, this use this old used truck is going to save you a, those sorts of things where there, you know, you’re, you’re not using them every day.
Um, and it’s not highly critical. If it goes down for a day, it’s not really going to interrupt your operations and you know, it’s pretty expensive to rent or pay someone else to do it. Yeah. Sometimes you can start looking to get the real bargains right. I’ve seen, you know, uh, Hire a CFO Edmonton, a lot of people do really well in terms of the, just look at equipment that they’re using sporadically and is there a cheap bargain basement option out there? And again, it’s something that you don’t use everyday and something that you, you know, it doesn’t really matter if it goes down for a day or not. It’s not going to affect your operations or that too much. Sometimes you can go really cheap on those options. Those are the ones to really be frugal on. So, so I think that’s what we have here today on this episode. You know, I, thanks again for tuning in guys. If you can hit the like button and subscribe me, much appreciated. Uh, also, if you have any questions, leave them in the comments below and we’ll try to address them in future videos. Thanks very much.