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dazzler
24th August 2007, 08:59 PM
Hey

I am going to ask for some advice re financing a new vehicle and machinery for business. I am going to see an accountant next wed for professional advice but dont want to look too homerish so would love some tips beforehand. :)

I am going to purchase a new truck valued around $45000 and machinery around $60000.

I can fund it out of the equity in the home, get a loan from the bank, lease from the companies that sell them.

I want the best tax advantages and interest rates :2tsup: .

If I borrow against the house then the interest is about 8% locked in over five years.

I like the idea of 5 year lease on each with about a 20% balloon. The idea being that after the 5 yrs if I am still a happy chappy and the business is okay then I can decide whether to keep them (pay 20% which I have put aside over the five years in case :) ), hand them back and get new ones or hand back and let kevin pay my wage for a while :D .

I would also like to have the business fund part of a rally car which will be used for advertising and driving to give quotes etc. Is this possible.

And if i want to pay cash for used (less than 1 yr old) can I put them on a lease after and get my cash back?

SWMBO can support me so i just need the business to break even with a little play money left over.:q

Any suggestions, alternatives or things to avoid and all will be considered general in nature and the only advice I will be taking will be that of the qualified accountant (just to put minds at ease)

cheers

dazzler

echnidna
24th August 2007, 09:48 PM
Forget looking for maximum tax advantage.

You should be looking at maximising Net Worth instead.

dazzler
24th August 2007, 10:52 PM
Forget looking for maximum tax advantage.

You should be looking at maximising Net Worth instead.

Hey bob

more info please :D

Colin Howkins
24th August 2007, 11:00 PM
Dazzler,

Having purchased a lot of machinery over the years, at the end of the day i don't think it really matters tax wise which way you do it. Lease: you claim all lease payments in full. Commerical HP: You get to claim all interest payments and depreciation. Depending on the type of machinery depends how quickly you can depreciate it and write it off, so depending upon that should determine which way you go, but as I said its about 6 of one half a dozen of the other. I have used both methods and both work well.

On the subject of the Rally Car - unless this business you are going into is highly profitable ditch the rally car idea. Sure you could write it off, but I can tell you from many, many years in business, I have seen so many people who let their heart start to control the ie business - usually with disastrous results. You must really sit down and ask yourself the question what are you going into business for - To create a business and hopefully make some bucks and secure your future or just to shovel money into a rally car?

Think about when you may want to sell the business, and a business is only good to sell when its profitable. If you shovel the profit into a rally car, you had better be clever in isolating the costs so you can show a prospective future buyer where the money has gone.

Hope I have not rained too mcuh on your parade

Colin Howkins
Graceville Qld

dazzler
24th August 2007, 11:43 PM
Hi Colin

Thanks, I kept my umbrella for just such occasions :D !

The business is really to give me an introduction into business without putting too much at risk.

I am lucky in that my super savings are good, own our house and swmbo is on a good wage.

So i need something to do so the brain doesnt go mushy, get out of the house and add to the super fund so I can eat better than dog food at retirement :p .

Just to clear up the rally car issue. My current costs for rallying are around the $3k a year. Not much compared to most as its just a hobby, but I was intending on using it to get around for quotes and stuff so there will be a business use as well as the advertising angle. I do see your point re the heart issue.

Thanks for your input. :2tsup:

echnidna
25th August 2007, 12:14 AM
Dazzler,
Total Net Worth is very simple.
Its your total assets less your total liabilities.

To compare leasing versus a loan you need to compare over the same period of time.

Into this comparison you must include
your tax costs,
lease costs
interest costs
equity in your plant and machinery.
etc.

When a lease runs out you have no equipment.
When a loan runs out you own your equipment, its value is your benefit.

Quite often you are financially better off with a loan rather than a lease despite paying more tax (as you end up owning your equipment.)

johnc
25th August 2007, 12:26 AM
Dazzler,

Get your advice but basically the rally car idea will not cut it, and I would avoid mixing hobbies with work the tax office doesn't like it and in the end the conection is not there. Advertising is one thing when its arms length but when its linked to your hobby the avoidance provisions knock you out.

Don't mix long term home loans with machinery finance, best to keep it separate. Either HP or lease will be at a fixed rate anyway, my preference is just H.P. finance for an extra year and cut out the residual. In the end they all end up about the same for tax deductions the difference is simply timing.

Lastly if all you are planing is tax deductability and just getting by then forget the whole idea you would do your family a favour by doing a cooking and housekeeping course and providing a benefit for everyone at home rather than simply fueling an obsession for equipment.

The first post was spot on, work out how you are going to produce a product people want at a price that gives you a profit, then look at the equipment you need then worry about tax. Lastly see if its worth it because if you are relying on your wifes income to support you then you are doing this for the wrong reasons.


John.

echnidna
25th August 2007, 12:47 AM
And if you need something to do theres always volunteer work.

Colin Howkins
26th August 2007, 12:36 AM
Hi Dazzler its Col from Graceville again,

Reading between the lines I get the impression you have not got a really firm idea what you want from your business, and to some extent you are relying upon the equity in your house and SWMBO'd wage to keep things afloat.

Really the business shoud be able to stand on its own two feet

By all means talk to your bean counter to help you get a handle on it all.

I spend a little of my time talking to year 12 kids who think they want to go into a business - along with their teachers - and I see a lot of hype in these groups and not a lot of reality. This sometimes I think transposes to the wider community

Quickly I see you are going to commit yourself to about $1900 per month in lease payments.

On top of this you have to add all your other costs - your bean counter should be able to help you with this. You then have to add on what profit you want. When you have this figure you then have to calculate how many 'widgets' you are going to have to produce or manufacture to cover this sum. You then have to caculate how much time it is going to take you to do this.Remembering you only have 230 work days in a year - this does allow for holidays.

You also have to take into consideration what the 'market' price is for your goods & services. If after crunching the numbers the price for your 'widget' is right outside market price you have to look to where the problem may lie.

I would advise you not to look at being the cheapest price 'widget' supplier. Any one can sell anything cheap. Differentiate yourself and look to get premium price for your product.

Mate, I don't want you to think I am throwing cold water on your idea. But over the years I have seen so many people go into a business unprepared and under capitalized
and seen them do their ????.

One of the great ironies of our capitalist system is that anyone is entitled to go into business and go broke.

On the up side is that if you proceed and work at it and do well you will derive an awful lot of satisfaction and fullfillment in knowing that you are the man in charge. If you make it go well your business will expand and you will reap the rewards, and despite all the trials and tribulations that go with the running of a business, those that do it well would never consider going back to work for a boss.

I guess the bottom line is know your costs, and go for it. Bite off a bit more than you can chew, then chew like hell and it will work

Keep us posted

Colin Howkins
Graceville Qld

dazzler
26th August 2007, 03:43 PM
Thanks for the replies,

Some background;

I have wanted to go into business for some years now and am half way through my small business course at tafe. (havent hit the financials yet).

I have looked at a number of existing business' to purchase but each time have not proceeded as the usual issue of the books show this much profit but of course - :wink: :wink: it earns a lot more. I am not happy to borrow money for goodwill that cant be substantiated so have passed on each.

I have broken down my essentials list as follows;

1. Must enjoy the job
2. Failure can only have a minimal impact on the families position
3. Must break even
4. Be educative in relation to how to run a business for the future

I live in the 2nd fastest growing region in NSW with the population estimated to increase by 70000 new residents over the next 20 yrs.

I have identified a niche market within the building industry in our area and one that should increase in volume as people redevelop existing properties. I am comfortable there is a market.

I am comfortable that the business is machinery based, there are no property leases / refits etc to pay for and add a burden, particularly if the business goes under.

In short, if the business is not profitable and goes under then I am out of pocket the cost of the machines or maintaing the lease until they run out and they are an asset that can be sold. Properly maintained, worst case scenario would be that they would sell at 50% of cost so the max out of pocket would be about $50k which is fine.

My personal situation is probably quite different to most in that many people who go into business seem to me to hate what they are doing, hate the boss etc etc but struggle because the business needs to make a profit and pay a mortgage, car repayments and maintain a family.

Fortunately I think my situation is pretty good for starting out on a 1st business adventure. Perhaps I sold it a little short initially. Yep I want to make a huge profit and be successful, but I dont have to sit up at night dreaming of plans to fake my own death for the insurance money :) .

Hope that makes sense. I do understand a little better now that either a HP or Lease work out close in the long run.

thanks

dazzler

echnidna
26th August 2007, 06:47 PM
Theres a tremendous amount of codswallop in business.
All the mandatory paperwork is a major PITA.

smeds
29th August 2007, 10:48 AM
Hi Dazzler, have a think about this and put it to your accountant, i have a very good friend and both himself and his wife earn very good money, what they were advised to do was for his wife to come up with a business name and an ABN. What my friend did then was purchase a new car via a lease back through his wifes company. He has told me that when it comes tax time the advantages are fabulous.

Just a note though, as for all of the advice you can be given, always seek proper advice from a registered financial adviser of tax agent.

Sebastiaan56
30th August 2007, 08:10 AM
Hi Dazzler,

As a business owner with well over 100k in various leases I can say one thing "beware the balloon" when you finance. Dont trust to saving as there are many demands on cashflow.

Also, please be aware that you work much harder for your dollar. Employees have it easy mate (that includes the leeches called Govt), its the employers who create the wealth in this country. Maybe it gets easier over time but you have to work hard to make it work.

That said if there is an opportunity and you can realise it, go for it. Buying my business was one of the best decisions I have ever made. I am effectively unemployable now but I really dont think I could go and work for someone else so its no big deal. Im much happier being in charge of my own life.

Sebastiaan