Whether you’re a tradie, a medical locum or an office professional, to get your contracts done, you’ll need to invest in equipment.
How you choose to finance that investment is an important decision that will affect your tax liability and your cashflow.
Any equipment purchases for your work should be made via your registered trading entity – whether you’re set up as a sole trader, a trust, a partnership or even a company. That way, the costs of owning and operating the equipment – such as the interest expense and any upgrades or maintenance, as well as depreciation, will be offset against your income.
If you’re working with a limited cashflow, you may be tempted to purchase second hand equipment. This can be a viable solution in the short term, however there are several benefits to purchasing new equipment from the get go that should be considered:
- New equipment will enhance your professional image,
- You’ll be working with – and gaining the benefits from – the latest technology,
- Your equipment will be covered by warranty and you’ll have access to support services from the manufacturer/ supplier,
- You’re more likely to be able to secure a loan facility at a lower interest rate and for a longer term than you would if you were financing second hand equipment,
- If you’re borrowing to finance equipment that is three years old or less, you’ll usually be able to negotiate a loan facility with a residual/ balloon. That means, at the end of your loan term, you’ll be able to:
- Refinance the residual for another loan period,
- Pay the balance owed and own the equipment outright, or
- Trade the equipment on new equipment if the supplier is agreeable.
Negotiating a residual means that despite the higher total cost associated with buying new equipment, your repayments may be easier to manage.
If you decide to purchase new, or second hand equipment without arranging finance, you will eliminate the need to pay interest on a loan. However, it’s important to ensure you’ll still have enough cash in the bank to manage your ongoing operational costs, which may fluctuate according to your contract work.
If you decide to purchase second hand equipment, check the date of manufacture then do your research to ensure it will run on the latest operating system – the last thing you want is to find your investment is redundant within a short time.
Seek Expert Advice
Before you make any decisions on investing in equipment, it is essential that you speak to an accountant. Ayers Group can connect you with accountants who have over 20 years’ experience working with contractors, should you need assistance.
Ayers Can Help You Find a Solution.
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