Part-time CFO services | Buying Used Equipment?
Many business owners believe that purchasing used vehicles and equipment in their business is an effective strategy to increase cash flow in their business says part-time CFO services. Since 50% of all businesses are out of business in five years, and 29% of these businesses that failed will say that running out of cash was the determining factor to the demise of their business, making great purchasing decisions is crucial to businesses success. When considering the defences between buying new or used vehicles and equipment within their business, business owners need to take several factors into consideration in order to make that decision.
The first factor that business owners should consider when theyíre obtaining financing for their purchase, is does it used equipment or vehicles affect the length of the loan says part-time CFO services. This is actually true, because of the useful economic life of the vehicle or equipment is lower in used assets, thanks actually require shorter loan terms in order to get their money back before the life of that equipment ends. Because the terms are shorter, payments will be higher, meaning that businesses will have a harder time paying that back then if they bought new. Despite the fact that used equipment has a smaller price tag on it, because of the differences in terms of the loan, business owners should consider buying new in order to have lower monthly payments and longer terms.
The second factor that businesses should take into consideration when deciding if they should buy new equipment or used equipment, is how much more expensive it will be to operate and maintain. Business owners may not take into consideration that not only will fuel cost be higher in used vehicles, but it will also require money to maintain vehicles and equipment when theyíre used versus new. By factoring in that monthly cost to their loan payment, business owners can start to get the idea of how much itís going to cost them to pay for their use equipment says part-time CFO services.
In addition to hire cost for maintenance, because the vehicles or equipment will be less reliable because they are used, there is a higher likelihood that they will break down more often. Fixing broken equipment not only costs business owner money but also cost them as well as their business time. Businesses canít usually have a lot of down time in their business where theyíre not being productive, as well as paid staff to not do work. This may be the highest cost of purchasing used vehicles or equipment, and definitely needs to be factored in to the cost when business owners are deciding if they should buy new or used.
When it comes to purchasing equipment and vehicles, business owners are often much better off to purchase brand-new but should think of the following factors when they are buying new says part-time CFO. Donít over buy, business owners should be careful to buy only what they need, that is a reliable and functional vehicle or equipment that is at the beginning of their usage cycle. Business owners can easily by equipment or vehicles that are much more fancy than they require, which ultimately puts them back at making a purchase that is detrimental to their bottom line.
Business owners canít afford to pay for, and canít get financing for the equipment they need in order to do their job efficiently says part-time CFO services. Helping businesses make great purchasing decisions when they are ready to replace their equipment vehicles, can help them keep the cash flow in their business where itís needed to be which can help them be successful in their business.
One of the first things that business owners should consider when they are ready to make asset purchases, is financing that purchase. The reason why financing is always a better option than paying for those assets with their cash, is that by utilizing financing as a tool, they can keep the cash in their business where itís needed. Since running out of cash is one of the top three reasons that businesses fail, keeping cash within the business to be used as operating capital is very important says part time CFO services.
So what can a business owner do they do not qualify for conventional financing asks part-time CFO services. Business owners can always apply for the Canada small business financing loan, which will loan business owners up to $350,000 in order to buy equipment and vehicles. The reason this is easier to qualify for is because the federal government is acting as the guarantor. This can be a great option for small businesses.
When businesses have secured their financing, the next question they should ask themselves is is by used equipment and vehicles actually going to be more economical for the business. Part-time CFO services recommends that business owners ask their bank if purchasing new or used has the same length of loan. Since the useful economic life of the vehicle or equipment is lower, the term of the loan is often lower as well. Business owners should avoid loans that need to be paid back in a short period of time, because this can put a cash crunch on the business. Also those short-term loans often have a much higher monthly payment on them, in order to pay back quicker which is very difficult for business do. These type of loans can cause the business owner to run out of cash trying to pay that loan back quicker.
By helping the business owner obtain financing, and make smart purchasing decisions, business owners can use the financing as a tool equipment that they need. By making smart purchases such as purchasing new vehicles and equipment, they can ensure that they have longer time to pay back the loan, which will be easier for them to do, keeping the money they do have in their business where it will be most effective.