Seven Numbers to Know Before Financing Your Next Machine
Seven Numbers to Know Before Financing Your Next Machine
Workloads are inconsistent right now. Rates are being undercut. Ownership costs are climbing. So it makes sense that more earthworking businesses are asking the same question before they sign on their next machine: can we actually afford this.
Not “can we get approved for the finance.” Can the business carry the machine once it’s on site.
The two questions get confused a lot. A lender can approve a loan based on your credit history and cash flow on paper. Whether the machine pays for itself once servicing, downtime and quiet weeks are factored in is a separate calculation, and it’s one most businesses don’t run before they buy.
Here are the seven numbers worth knowing before you finance your next machine.
1. Total weekly cost of ownership
Not just the repayment. Add insurance, servicing, registration, and any finance or lease fees, then work out what the machine costs you to own for a week, whether it’s on a job or parked up.
Most businesses can rattle off the repayment figure without thinking. Fewer can give you the full weekly number, and it’s usually higher than they expect.
2. True hourly cost
Take the weekly cost of ownership and divide it by the hours you realistically expect the machine to run. Not the hours in a perfect week. The hours you’ve actually been getting over the last six to twelve months.
This number should be behind every quote you put out. If you don’t know it, you’re pricing on instinct.
Work backwards from the weekly cost of ownership to find out how many billable hours are needed just to cover it, before any profit is made. Compare that to what the machine has actually been achieving. If the gap is wide, the purchase needs a harder look.
4. Fuel, wear parts and consumables
Separate from servicing. Ground engaging tools, tyres or tracks, fuel, and general wear add up fast on earthworking equipment and are easy to underestimate when you’re comparing weekly repayments across finance options.
5. Repair and downtime cost
Every machine breaks down eventually. Two figures matter here: what a typical repair costs, and what a week of downtime costs you in lost billable hours. Businesses that have worked this out beforehand generally cope a lot better when it happens. Businesses that haven’t tend to find out the hard way, usually at the worst possible time.
6. Cash buffer required
If work slows down for four to six weeks, can the business still cover repayments, insurance and servicing. Most operators haven’t put a number on this. It’s worth working out before you buy, not after work has already dried up.
A reasonable starting point is enough cash held in reserve to cover three months of ownership costs on the new machine, on top of everything else already running through the business.
7. Loan structure and its effect on cash flow
Term length, balloon payments and repayment frequency all change how much room the business has in a slow month. A lower monthly repayment with a balloon at the end might suit a business expecting steady growth. A shorter term with no balloon might suit a business that wants the asset owned outright sooner. Neither is automatically right. It depends on the other six numbers above.
New, used, or hire
Once these numbers are in front of you, the buy versus hire decision gets a lot clearer.
If billable hours are inconsistent and the work pipeline isn’t certain, hiring or a shorter-term finance arrangement on a used machine can protect cash flow while the business finds its footing. If utilisation is strong and the numbers stack up, buying new with the right loan structure can be the better long-term move, particularly with tax and depreciation benefits factored in.
The mistake is making this decision based on repayment size alone. The repayment is one line in a much bigger calculation.
Where this leads
Running these numbers properly takes time, and most businesses are too busy working to get around to it. That’s what we’ll be covering in an upcoming session, Can Your Business Really Afford the Next Machine, a practical look at the true cost of ownership, how to stress-test a purchase decision, and how loan structure can be used to protect cash flow rather than strain it.
If you want to talk through your own numbers before then, Colin is a good place to start. At TAFS we work with 80+ lenders, run a 93% approval rate, and can get same-day approvals from one application. But the finance is only useful if the numbers behind it stack up first.
Need Help Financing Your Next Machine?
TAFS helps earthmoving contractors structure finance for new and used machinery, with options built around cash flow, lender appetite and business growth.
Seven Numbers to Know Before Financing Your Next Machine
Seven Numbers to Know Before Financing Your Next Machine
Seven Numbers to Know Before Financing Your Next Machine
Workloads are inconsistent right now. Rates are being undercut. Ownership costs are climbing. So it makes sense that more earthworking businesses are asking the same question before they sign on their next machine: can we actually afford this.
Not “can we get approved for the finance.” Can the business carry the machine once it’s on site.
The two questions get confused a lot. A lender can approve a loan based on your credit history and cash flow on paper. Whether the machine pays for itself once servicing, downtime and quiet weeks are factored in is a separate calculation, and it’s one most businesses don’t run before they buy.
Here are the seven numbers worth knowing before you finance your next machine.
1. Total weekly cost of ownership
Not just the repayment. Add insurance, servicing, registration, and any finance or lease fees, then work out what the machine costs you to own for a week, whether it’s on a job or parked up.
Most businesses can rattle off the repayment figure without thinking. Fewer can give you the full weekly number, and it’s usually higher than they expect.
2. True hourly cost
Take the weekly cost of ownership and divide it by the hours you realistically expect the machine to run. Not the hours in a perfect week. The hours you’ve actually been getting over the last six to twelve months.
This number should be behind every quote you put out. If you don’t know it, you’re pricing on instinct.
See the Earthworks Hub Hourly Rate Calculator with a Workshop video for assistance
3. Minimum billable hours to break even
Work backwards from the weekly cost of ownership to find out how many billable hours are needed just to cover it, before any profit is made. Compare that to what the machine has actually been achieving. If the gap is wide, the purchase needs a harder look.
4. Fuel, wear parts and consumables
Separate from servicing. Ground engaging tools, tyres or tracks, fuel, and general wear add up fast on earthworking equipment and are easy to underestimate when you’re comparing weekly repayments across finance options.
5. Repair and downtime cost
Every machine breaks down eventually. Two figures matter here: what a typical repair costs, and what a week of downtime costs you in lost billable hours. Businesses that have worked this out beforehand generally cope a lot better when it happens. Businesses that haven’t tend to find out the hard way, usually at the worst possible time.
6. Cash buffer required
If work slows down for four to six weeks, can the business still cover repayments, insurance and servicing. Most operators haven’t put a number on this. It’s worth working out before you buy, not after work has already dried up.
A reasonable starting point is enough cash held in reserve to cover three months of ownership costs on the new machine, on top of everything else already running through the business.
7. Loan structure and its effect on cash flow
Term length, balloon payments and repayment frequency all change how much room the business has in a slow month. A lower monthly repayment with a balloon at the end might suit a business expecting steady growth. A shorter term with no balloon might suit a business that wants the asset owned outright sooner. Neither is automatically right. It depends on the other six numbers above.
New, used, or hire
Once these numbers are in front of you, the buy versus hire decision gets a lot clearer.
If billable hours are inconsistent and the work pipeline isn’t certain, hiring or a shorter-term finance arrangement on a used machine can protect cash flow while the business finds its footing. If utilisation is strong and the numbers stack up, buying new with the right loan structure can be the better long-term move, particularly with tax and depreciation benefits factored in.
The mistake is making this decision based on repayment size alone. The repayment is one line in a much bigger calculation.
Where this leads
Running these numbers properly takes time, and most businesses are too busy working to get around to it. That’s what we’ll be covering in an upcoming session, Can Your Business Really Afford the Next Machine, a practical look at the true cost of ownership, how to stress-test a purchase decision, and how loan structure can be used to protect cash flow rather than strain it.
If you want to talk through your own numbers before then, Colin is a good place to start. At TAFS we work with 80+ lenders, run a 93% approval rate, and can get same-day approvals from one application. But the finance is only useful if the numbers behind it stack up first.
Need Help Financing Your Next Machine?
TAFS helps earthmoving contractors structure finance for new and used machinery, with options built around cash flow, lender appetite and business growth.
Phone: 0468 926 635
Email: colin@tafs.com.au
Website: www.tafs.com.au
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