Considerations when buying business assets
Posted by Northadvisory on February 1, 2022
Every business owner will reach a time when they have to think about buying business assets. Perhaps they need a fleet of laptops for their sales team, or maybe new company vehicles… or it could even be purchasing a commercial property.
The more significant the asset, the more carefully you should consider your options.
If you just need a few desks and chairs because you’ve hired some new team members, that’s not too complicated a purchase… but if you are looking at investing in a factory because your manufacturing business is rapidly expanding, then it would be prudent to seek professional accounting services to help guide you through the process.
We look at some of the basic considerations you should think about when making high-value commercial purchases.
Should you buy or lease?
The first question you should ask yourself is whether you should buy or lease.
Purchase costs can often make a huge dent in a company’s budget, especially if you want to buy your asset outright.
There are financing options available, but it’s worth crunching the numbers to determine the most financially viable choice.
Depending on your agreement, a lease sometimes allows you to upgrade your asset at the end of each lease term. This is often popular if the asset is subject to technological advancements… upgrading to a newer model might suit your business needs.
Within the lease period, you pay regular instalments for the asset and this can most likely be treated in the same manner as an asset purchase for accounting purposes.
But purchasing your asset might be a more economical option in the long term. For example, if a construction grapple costs $8,000 and you lease it for $300 a month over a three-year term, you end up paying $10,800… and at the end of the lease the machinery isn’t even yours to keep.
Another example for a construction company is large industrial vehicles. If you can own your excavator – rather than hire a different one for each project – it means your operators can become highly proficient with your specific machine.
This can improve their work efficiency because they don’t have to spend time on every job becoming familiar with a different vehicle.
Do you need financing?
Every business asset you purchase can impact your company’s working capital, so it’s important to consider whether you need financing.
You need to forecast the financial effect it will have on your cash flow should you decide to hand over a lump sum.
This can then guide your decision about whether taking out a business loan is a more appropriate solution.
If you do decide to take out a loan, then it could even allow you to buy a larger asset. Regular loan repayments could help you pay off a higher capital purchase that may have been impossible to afford with cash.
There are a variety of tax implications around business asset ownership and this is certainly where a professional business accountant can help – especially with the current extensions in place for instant asset write-offs.
Essentially, business assets could accrue tax benefits if you purchase them outright. According to the ATO, “You generally can’t deduct spending on capital assets immediately. Instead, you claim the cost over time, reflecting the asset’s depreciation (or decline in value).”
But there is a temporary full expensing measure that allows businesses, “with an aggregated turnover of less than $5 billion to immediately deduct the business portion of the cost of eligible new depreciating assets.”
Make sure you protect your assets
Finally, whether you are buying or leasing, it’s essential that you protect your assets. You need to make sure you have the correct insurance that covers loss, theft or equipment breakdown and also covers lost income should the issue impact your business’s ability to continue running. And if your asset is a commercial property, you want to be covered against any destructive events.
Our team can help
Here at North Advisory, we understand that purchasing assets can be stressful when you have to assess the financial risks to your business.
Our team of accountants can help guide you through the commercial consequences and provide you with insight drawn from your critical financial data.
If you’d like to find out more about how we can help you and your business, please contact us today.
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