Our Guide to Financing New Machinery
Investing in new machinery which increases your production capacity it a great way for your food facility to grow your offering and accelerate your profits.
This is a quick guide for Butchers Owner-operators and other SMEs businesses in the food industry looking to expand their operations through the purchase of new processing and packaging machinery.
Common ways of purchasing new equipment:
Buy the machine outright - How does it work?
Paying upfront for equipment is as simple as it sounds and a safe way to invest. Doing it this way is sometimes the most secure, as there is no risk from any unprecedented downturn.
When should I buy a machine outright?
• Your accountant tells you to spend some money before the end of the financial year; There are always incentives available for smaller businesses who purchase assets prior to the end of the financial year.
Talk to your accountant to take advantage of any government tax write-off or similar programs.
• Because you have done it before; Some people simply have a philosophy to only buy what they can afford - and that’s fine!
So, if you have always purchased your assets outright and intend to continue doing so - you are probably in the safest position. However, your output will remain at the same level it has always been. Remember the old saying; nothing ventured, nothing gained.
Buying machinery outright is the most straightforward option. However, if you don’t fit into either of the categories above, you may wish to consider the finance options explained below.
Financing equipment - How does it work?
Finance options allow you to make small repayments every week to pay off aa asset over a 30, 50, or even 60 month term. The minimal weekly payback figure will mean the production yielded from the machine will help to ‘pay itself off’ over time, and at the end of the period you will own the equipment as an asset.
Whether it is your bank, finance companies like SilverChef or similar programs, there are many different options when it comes to sourcing a finance provider.
We recommend reaching out to someone you know and trust, or if you have never used financing before, why not ask one of our machinery team for recommendations?
When is a financing machine a good option - here's the most common situations:
• When investing in a bundle or ‘shop-load’ of equipment; the higher invoice figure will make your investment more attractive to lenders and often earn you a better interest rate compared to financing various pieces of equipment separately.
• When cash-flow is tight; often you can see a huge advantage open to you if you expand your product range to grow your business. But the upfront investment can seem daunting.
Finance options are a great way to help your new product venture to find its feet in the market without tying up your cash.
•To expand your premises; with the expansion of your premises or with the addition of another retail store you may find the need for new equipment.
If you have got as far as making plans for your expansion, one thing is clear: you have a good vision for the road ahead, sometimes a financial incentive can give you the confidence you need to do bigger and better things.
Financing equipment purchases is a safe and financially savvy way of purchasing machinery. However, if you aren’t confident enough in your investment to purchase a machine, hire may be the right option for you.
Hire or lease options - How does it work?
Different companies have various hire and buy back options and are sometimes comparable to financing equipment when given a rent-to-own option. Usually hire will be based on a weekly rental amount - including servicing and insurance fees - which will be often paid one payment in advance.
This system will usually have some kind of buy back incentive at the end of the minimum period. Billing periods can vary depending on the situation, but commonly you will be billed fortnightly or monthly.
When should I consider machinery hire?
Sometimes hiring a machine helps you fulfill contracts and unprecedented downturns without the initial outlay buying a new bit of kit.
Here is some of the most common use cases for hire:
• Finding a market for your new product; as an example, you may have been approached by the local Asian supermarket to produce a special burger which is the native cuisine to a particular group. You may not be confident how strong this new market is, or if it has potential for growth.
In this situation, you may consider renting an automatic burger machine that will enable you to start and test the initial production phase for the supermarket, allowing them to find the buyer of your new product.
• Fulfilling a short term or seasonal contract; a common example is during the Christmas silly season when ham production may ramp-up for just a few months during the festive period. A machine that is not working for the other months of the year is dead cash, and you may find renting an additional vacuum packer to help out with production will see you through the season.
• To keep production going during a breakdown; unfortunately it can happen to the best of us, and when the worst does happen and a machine which is a crucial part of production breaks down, you are going to want to backup fast. When having two machines on site at all times may not be practical, the next best thing to do would be hire a new machine to avoid the downtime.
To learn more about our hiring options, contact us.
No matter what option you choose when purchasing new equipment for your food production facility, there is one thing we have observed during our years supplying the food industry. Small to medium businesses who continue to evolve and invest in new equipment are usually far ahead of the competition in the long run; with more products, a unique offering and a customer base that comes back for something new and exciting.