Direct Debits and Online Payments

Do You Have Direct Debits and Online Payments Set Up for Your Business?

Making it easy for your customers to pay you is vital to business success. Getting direct debits and alternative payment methods linked to your business is so easy these days there's no excuse not to give your customers multiple ways of making payment.

Many service-based businesses choose direct debit arrangements with their clients to avoid late payment. If you’re often chasing overdue payments, consider implementing direct debit arrangements to reduce your administration time.

If you’re already using online accounting software, check the add-on solutions and choose one that integrates with your accounts. This means that the payment platform information feeds directly into your accounting software to be easily matched to customer transactions.

Need help integrating your systems? First Class Accounts Ovens & Murray can review your accounting software and implement the direct debit or online payment solutions to suit your business.

Make it Easy

You probably already have bank transfer information set up, but adding several other methods such as PayPal, debit cards, and credit cards allows customers to choose the method most convenient for them at the time. Many customers appreciate the automation and simplicity of direct debits.

Make sure your payment terms and conditions are clear on your website and invoices and don't forget to include all your chosen payment methods for customers!

Unsure about setting this up? First Class Accounts Ovens & Murray can help ensure your payment terms are communicated clearly and that all payment methods are displayed on your invoices.

Worried About Costly Fees?

You have the option to choose whether you will absorb the cost of the payment gateway processing fees or whether you will add the cost to your invoice and charge the clients extra. Your accounting software will then allocate the funds accordingly to invoice payment and fees received.

Looking for guidance on managing fees? We can help you decide the best approach for your business and set up your accounting software to handle these charges automatically, saving you time and avoiding errors.

Better Transaction Recording

When you integrate direct debits and online payment methods with your accounting system, you dramatically reduce errors in recording customer payments – which means less time spent on your accounts!

Not Sure Where to Start?

If you’d like to make it easier for customers to pay you, talk to us about which solutions are best for your business. We can discuss which platforms have the best and most secure integrations with the accounting software you use.

Streamline Your Systems with Expert Support

Improving your payment systems doesn’t have to be complicated. With support from First Class Accounts Ovens & Murray, you can implement direct debits and online payments that save time, reduce admin errors, and improve cash flow. Contact us today to get started.

Cashflow and cost control

More than ever, cashflow is a vital part of staying afloat, whether your business is in recovery or growth mode.

Revenue, profit, and your bottom line are always important, and in 2024, maintaining steady cashflow remains the foundation for keeping your business running smoothly and adapting to challenges as they arise.

Regular cashflow forecasts will help you keep that in focus. Here’s why:

Cost control  

If you can't reach your targets for income, reining in your costs may give you a little extra head room to manage cashflow while you plan your next move.

At First Class Accounts Ovens & Murray, our team provides detailed cashflow analysis and forecasting services, ensuring you have a clear picture of your financial position. With actionable insights, we help you identify areas where costs can be reduced without compromising business quality.

Visibility on outgoings 

Cost control can be a challenge when it’s hard to pinpoint hidden costs or where established ways of doing things cost more money than they should. You may also have been coping with unexpected expenses, as you’ve adapted your business for unplanned circumstances.

We can your financial systems and processes to identify inefficiencies. Our expertise in management accounting ensures your data is not only accurate but also timely, so you’re never left guessing where your money is going.

Improving business practice

It's more than just keeping an eye on outgoings (though that's important). It's about looking at each aspect of your business and business systems (or the gaps where there should be business systems) to see if poor practice is driving costs up unnecessarily.

Streamlining your processes can drastically improve your cost control. We work with you to implement appropriate apps to improve efficiencies, save time and money, and reduce costly errors.

It can be useful to break it down  

You can look at cost centres such as office supplies or freight. Or you can look at what those costs do for your business.

It can help to analyse costs in terms of cost of sale and overheads.

Cost of sale and overheads

Cost of sale (also known as Cost of Goods Sold or CoGS) is how much it costs you to make a sale. In a business which sells products, CoGS is based on the price paid for the product, plus any costs necessary to put the merchandise into inventory and make it ready for sale, including shipping and handling. You can even break it down to calculate the cost of sale of individual units.

Overheads are general business expenses. They can’t be tracked directly to sales. Overheads are what it costs you to open your doors (whether online or actual) every morning.

What’s your plan?

1. Reduce unnecessary expenses
   Now might be the time to trim every expense that’s not related to your core product or service.
2. Suppliers
   Are you able to work with your providers to ask for discounts or more favourable payment terms on either cost of sale or overhead expenses?
3. Talk to the team
   Analyse your costs and involve your team, including frontline sales staff.
4. Advertising
   It might be a false economy to cut back on advertising, as customers are online looking for bargains and price-checking alternatives. Targeted campaigns might work better.
5. Prioritise
   Can you pinpoint the products most likely to bring the fastest or best return and hold back on products that are a slower sell?
6. Promote or discount
   If you have old or slow-moving stock, can you discount it and convert old stock to cash? If you can attract customers now, you may be able to use it to spotlight your other products.

Making managing cashflow easier

Every dollar you can pull back from your costs can go straight into cashflow. Whether your sales are booming or slow, keeping your costs under control is key to sustaining growth and stability.

At First Class Accounts Ovens & Murray, we understand the importance of managing your cashflow effectively. From cashflow forecasts to systems that streamline your operations, we partner with you to ensure your business has the financial stability it needs.

Want to get a handle on cash flow in your business?

Whether your sales are boom or bust, you want to make sure that your costs aren't holding you back. We can help.

Talk to us if you'd like to review your costs and your systems to keep costs under control. .

Planning for seasonal dips in income

Seasonal dips in income can be highly challenging when you’re a small business. But there are proactive ways to predict, plan for and overcome these dips in revenue.

The key to dealing with seasonal dips is to know when they’re most likely to occur, and to have measures in place to spread your income and revenue pipeline over the course of the year.

Understanding seasonality in your sector

If your business is seasonal such as pool supplies, or a ski gear specialist, you’ll be used to the peaks and troughs, but many 'non-seasonal' businesses experience times during the financial year where sales and revenue peak – and, on the flipside, where sales and revenue experience a pronounced dip.

When income is low at certain times of the year, it makes for challenging times. First Class Accounts Ovens & Murray can assist by analysing your business's financial history to pinpoint these peaks and troughs. Our expertise in management accounting provides insights that help you understand your sector’s unique seasonality and prepare for it.

So, what are the key ways to plan for this kind of seasonality?

Forecast your seasonality

It’s vital to know WHEN you’re most likely to experience any seasonal dips. Looking at bench-marking reports for your industry is one way to predict the seasonality in your niche or sector. But you can also use your own accounting data to great effect. Look back through your profit & loss reports and spot where the peaks and troughs have occurred over preceding years.

First Class Accounts Ovens & Murray offers forecasting services to help you assess this historical data. With our support, you can anticipate and prepare for quieter periods, ensuring that your financial planning is well-informed and tailored to your business.

Charge a premium in peak time 

One straightforward approach is to apply premium pricing for your products/services during the busy season. By increasing your pricing, you boost your overall revenue, giving you more working capital to see you through the leaner months when sales and income are at their lowest.

Our team can work with you to develop a pricing strategy that aligns with your cash flow needs, helping you make the most of high-demand periods while securing funds to navigate slower months.

Offer additional peak-time services

Offering added extras and other additional service lines during peak time is another way to maximise the season. In the months where customers are most engaged, look to upsell these premium services and offer more value. Satisfied clients will be more inclined to pay for added extras, giving you an increased revenue stream from the same number of customers.

We can help identify and structure these peak-time offerings, ensuring you’re positioned to maximise revenue during high-demand times.

Target other markets

Exploring other related markets is another useful tactic. When you’re experiencing downtime, look for other ways to monetise your existing assets, products or services. For example, if you’re a hotel where sales peak in summertime, offer discounted conference space in the winter months to boost revenue.

Diversify your products/services

If one product/service has a known seasonal dip, look at adding an additional product or service to offset this downtime. For example, a a ski resort could promote bike-riding or hiking breaks during the warmer summer months to keep revenue constant. Likewise a pool maintenance firm could establish an outdoor fireplace business for the colder months.

Have a regional e-commerce strategy

If you’re dependent on a small local market, broadening your marketing and e-commerce strategies can help to attract a wider customer base – and bolster sales. Paid advertising through Facebook, LinkedIn or Twitter can easily target new geographical markets, bringing in new customers and giving your revenue a much-needed uplift during seasonal troughs.

Talk to us about planning for seasonality

If your business is struggling with seasonal dips, and the resulting impact on cashflow, come and talk to us. We’ll help you identify the timing of your seasonal downtime, and come up with a clear strategy for stabilising your income across the year.

Get in touch to start planning for seasonal dips in income.

The difference between profit and cashflow

The purpose of a business is to make money, and that means you need to know the difference between profit and cashflow.

Net profit is what you have left after you deduct all your business expenses from all your revenue. You can improve net profit only by changing the things that affect revenue and expenses.

For example, if:

• You renegotiate with your suppliers, you may get stock cheaper, or carry less inventory
• Your staff engage with customers better, you can learn more about what they do and don’t like – and get more business
• You can roster staff differently, you may be able to run your business more efficiently.

Cashflow comes from various sources. However, it also covers operating expenses, taxes, equipment purchases, repayments, distribution, and so on. 

Note that a profitable business does not always have good cashflow. And a business with good cashflow is not always profitable. For example, you can have good cashflow, and loss-making expenses.

If you're unsure about your cashflow or how to improve it, First Class Accounts Ovens & Murray can help. Our services include regular cashflow forecasting and reporting, so you always know where you stand financially.

Keeping cash crowned as King

Your business can’t survive without cash.

The following six takeaways are essential for business success:

1. Protect your cash position, by knowing what it is. Build a cashflow statement and always keep it up-to-date. If you foresee a shortfall, start at once to fix it. At First Class Accounts Ovens & Murray, we help create and maintain cashflow statements, ensuring you have real-time data to support your decisions.
2. Create a cash buffer as an insurance against unexpected difficulties.
3. Protect your cash position against revenue shocks, by maintaining a balance equivalent to at least two months of operating expenses. We work with you to establish realistic cash reserves based on your business needs.
4. Be realistic with revenue expectations. Take action now if it looks like sales are not going to get you to breakeven. If you need help analysing your revenue trends or setting achievable financial goals, we can provide expert advice and guidance.
5. Credit checking up front will reduce the risk of customer non-payment. Make sure you follow up with clear payment terms agreed in writing. Communicate regularly with customers and automate where possible. We can help streamline this process through automation, freeing up your time to focus on growing your business.
6. Every dollar you spend reduces cash reserves. The best way to protect your cash is to create a budget for the spend you know you need, and stick to it.

Ready to Improve Your Cashflow?

If you're looking to improve your cashflow or need advice on managing profit and cashflow together, make time to talk to us. 

First Class Accounts Ovens & Murray provides a full range of bookkeeping services, including cashflow forecasting, budgeting, and management accounting, so everything gets done on time, accurately, and efficiently. We're here to help ensure your business stays financially healthy, allowing you to focus on what you do best.

Managing Better Cashflow

We all know that cashflow management is vital for a growing business. But where do you start?

Here are six steps to managing better cashflow.

6 steps to managing better cashflow

1. Invoicing

Invoicing is a good place to start your cashflow management.

In other words, invoice your customers as soon as your product is sold or your service is provided. The quicker you invoice, the quicker you should get paid. Also consider asking for a deposit up front – especially if you’re a service provider or your product has a high-end price.

At First Class Accounts Ovens & Murray, we can assist you in setting up efficient invoicing systems that integrate with your existing processes, ensuring timely invoicing and follow-ups on overdue payments. This can greatly enhance your cashflow and reduce delays in receiving payments.

2. Know your numbers

We understand that not everyone is confident with numbers. That doesn’t mean you shouldn’t know your numbers.

Having appropriate accounting software in place, like Xero, will help you always know your cash position. The right software will also help you forecast your cashflow.

Having a good handle on your business numbers will not only help you manage your cashflow, it helps you take advantage of new opportunities.

First Class Accounts Ovens & Murray are certified Xero advisors and can assist you in implementing and managing cloud-based software like Xero or MYOB. This helps keep you on top of your financials, enabling you to forecast and make informed decisions based on real-time data.

3. Keep your numbers current

We mentioned having the appropriate accounting software in place. But that software is only as good as the information you provide it. Keep your information up to date so you know the financial state of your business at any time.

If you don’t have the capacity or capability to manage your accounting software, then outsource to a qualified bookkeeper. First Class Accounts Ovens & Murray provides complete bookkeeping services, so your accounts are always up to date, giving you accurate and timely insights into your cashflow. We also provide cashflow forecasting, helping you avoid potential cash shortages or capitalise on business opportunities.

4. Don’t be a pushover

Make sure your invoices are paid on time and don’t be too lenient with your customers. Keep an eye on your accounts receivable and have an invoicing strategy for any overdue accounts.

You may sometimes need to understand your customers challenges, but that doesn’t mean you should be taken advantage of. Be prepared to act sooner rather than later.

At First Class Accounts Ovens & Murray, we can help you implement an accounts receivable process that keeps overdue invoices under control. For example setting up automated reminders.

5. Save for a rainy day

Sometimes quick access to cash can make or break your business. Saving for the proverbial rainy day (in other words, building a cash reserve) can provide you with that access if unexpected expenses occur. Or an opportunity arises to invest in your business that’s just too good to pass up.

6. Separate business from pleasure

It’s essential that you keep your business and personal finances separate. Especially if you want to know your business numbers so you can manage and forecast your cashflow effectively.

Cashflow is king

Yes, “cashflow is king” is an expression we hear all the time. And there is a reason for that. Managing your cashflow effectively means that your “cash” serves you and helps you build a successful business.

If managing cashflow seems overwhelming or you're struggling to keep up with bookkeeping, First Class Accounts Ovens & Murray can step in to handle the process for you. From invoicing and payroll to forecasting and reporting, we offer tailored services to keep your business on track financially.

If you need help managing your cashflow, talk to us – our efficient processes will save you time and money, allowing you to focus on growing your business.

Reduce your debtor days and improve cashflow

Managing the gap between the receiving money into your business and paying money out of your business is vital for sustaining viability.

So, how do you reduce your debtor days and improve your cashflow? Let's start with understanding debtor days. 

Debtor days is the average number of days taken for a business to receive payment for goods or services. Keeping track of the average number of days for a business to receive payment is important in understanding the cashflow gap you might experience and the impact on cashflow planning and budgets.

How to calculate debtor days

(Year-end receivables amount ÷ annual sales) x 365 days = average debtor days.

Here's an example: An IT consultant has in her terms and conditions that payment is due 21 days after invoice date. But she is interested to know what the actual average payment time is.

Trade debtors at 30 June 2019 = $35,000

Annual sales for 2019 = $478,000

(35,000 ÷ 478,000) x 365 = 26.7 days

With this information, she can either alter her cashflow planning according to the actual time-frame or take steps to reduce the average number of debtor days.

Here are ten things you can do to reduce the payment times?

1. Update your payment terms

Make sure the terms are clear on every invoice issued. Don’t forget to include bank details on the invoice!

First Class Accounts Ovens & Murray can assist in reviewing your payment terms and help integrate them into your invoicing software, ensuring consistent communication.

2. Regular admin

Schedule a regular time for your own administration and get your invoices out promptly.

3. Send to the right person

When you send invoices, make sure you address the email personally to your contact. Send the invoice to multiple addresses if possible, for example, your contact and the accounts department.

We can assist in setting up automated systems to manage your contact database, minimising errors in invoice distribution.

4. Use technology to your advantage

Use automated invoice reminders to notify customers when an invoice is about to be due and then when it is overdue. Do not wait to send notifications manually, let the software do it as soon as the invoice is a day overdue.

We can help implement the latest accounting software that includes automated reminder features, keeping your invoicing on track.

5. Make it easy for your customers

List the payment terms, for example, due in 14 days, as well as the actual due date.

6. Provide incentives for early payment 

For example, a 5% discount if paid within five days.

7. Offer several payment methods for clients

Adding options like credit card payments or online gateways such as PayPal makes it easier for clients to pay promptly.

We can advise on and set up various payment methods, ensuring integration with your existing systems.

8. Offer instalment payment plans over a mutually agreed period. 

This allows you to plan for part payments, rather than being inconvenienced by the whole invoice being paid late.

9. Do not offer unlimited credit to customers

Make sure your terms and conditions include the right to refuse further supply if invoices are outstanding. Request part or full payment before supplying more goods or services.

10. Talk to your suppliers

Maintain good relationships and clear communications so they are more likely to help you if you need an extension on your bills. If possible, renegotiate supplier terms that suit your business cashflow.

Take Advantage of Low-Activity Phases

During periods of lower business activity, take the time to:

• Update Terms and Conditions: Make sure they reflect your current business needs.
• Implement Alternative Payment Options: The more ways customers can pay, the fewer barriers there are to timely payment.
• Refine Business Systems: Use this time to review processes and find ways to improve them.
• Revamp Your Website: Ensure payment information and terms are clearly displayed.

First Class Accounts Ovens & Murray can support you in enhancing your business systems with app integration. We offer tailored advice on selecting and implementing the right apps for payment processing, invoicing, and cashflow management. Our services include ensuring seamless integration with existing systems to improve efficiency. We can also conduct cashflow analysis using app-based tools to compare your debtor days with industry standards, pinpointing areas where technology can help reduce payment times and optimise cashflow.

Talk to us about adding payment options, updating your software and improving business systems to assist in reducing the number of debtor days to improve your cashflow.

We can also look at average debtor days of your business compared to industry averages and discuss ways of managing cashflow during difficult periods.

7 ways to reduce your expenses and boost revenue

A recent survey showed that 32 per cent of Australian businesses list increased operating costs among their top three concerns. And rising costs can have a significant impact on your cashflow and bottom line.

So, what can you do to minimise the impact of sky-rocketing costs in your business?

7 ways to reduce your expenses and boost revenue

When costs are rising and profit margins are falling, that’s bad news for the financial health of your business. But there are ways to combat this scenario.

In short, you have two main tactics to kick into gear. You can either look at cost-cutting across all your operating expenses, or you can find ways to sympathetically boost your revenue.

Strategies for cost reduction

Streamline your operations

Look for any inefficiencies and find ways to streamline your processes and reduce the underlying costs. You can also use technology to automate key functions to add efficiency and reduce your underlying costs.

First Class Accounts Ovens & Murray specialises in helping businesses optimise their financial operations. We provide software integration services to ensure your financial data is accessible and accurate. By automating invoicing, payroll, and expense management, we’ll help you free up time to focus on the core aspects of your business.

Negotiate with suppliers

Revisit your existing contracts with suppliers and negotiate better terms, while also being mindful of the suppliers own cashflow pressures. Looking for alternative suppliers or finding cost efficiencies by purchasing in bulk.

First Class Accounts Ovens & Murray can help you integrate supplier management and purchasing apps that allow you to track and evaluate supplier performance, ensuring you get the best deals. Tools such as Unleashed can help you keep on top of orders and manage supplier relationships more effectively.

Reduce your energy consumption

Putting energy-saving measures in place, like LED lighting and energy-efficient equipment, is a move towards good sustainability, but can also help you save money. Considering renewable energy options can also help.

Manage inventory effectively

Keeping your inventory lean is a good way to optimise inventory levels and minimise your holding costs. Implementing a just-in-time inventory management cuts costs while keeping you ready to service customer needs.

First Class Accounts Ovens & Murray can assist you in integrating inventory management apps that suit your business needs. We specialise in setting up and maintaining systems like Xero, and other cloud-based apps that provide real-time insights into stock levels, automate reordering, and help you avoid overstocking or stockouts. This ensures your inventory is managed efficiently, reducing unnecessary costs and freeing up capital.

Strategies for increasing revenue

Expand your customer base

A broader customer base helps to bring in more sales and revenue. Explore the potential for entering new markets or customer segments, and boost ecommerce and digital marketing to sell more online.

Raise your prices strategically

Think about the demand for your products/services in the market and revise your pricing to keep it competitive. Be sure to communicate any price increases sympathetically to customers, so you don’t damage customer loyalty.

With the help of First Class Accounts Ovens & Murray, you can integrate pricing tools that give you a clearer view of market trends and customer buying behaviour. Apps such as Vend or Lightspeed can assist in tracking sales and help you adjust prices in response to market demand, ensuring you maintain competitive pricing without losing customer loyalty.

Introduce new products or services

If your current products/services are not selling, it could be time to diversify your offering to meet changing customer needs. Make the most of your existing resources and expertise to bring new products to market.

First Class Accounts Ovens & Murray can help you budget and forecast for these new product lines by integrating cloud-based financial apps like Xero, allowing you to track performance metrics and evaluate whether new products will positively impact your revenue.

Be proactive and protect your business

There’s no magic wand that can make the current economic pressures disappear. But by being proactive about your cost-reduction and revenue-generation, you can do your best to protect your business from the worst elements of increasing costs and an uncertain market.

First Class Accounts Ovens & Murray can help you review your current financial and business strategies to look for the best possible opportunities, whether it’s better cashflow management, cost-cutting, or revenue generation. We specialise in implementing cloud-based apps such as Xero and other integrated tools to give you real-time financial insights, automate processes, and streamline operations. Our bookkeeping services ensure your financial data is accurate and up-to-date, giving you the clarity to make decisions that reduce your expenses and boost your revenue.

By adopting the right financial and operational apps, you'll be well-equipped to stay on top of your cashflow, control costs, and unlock new revenue opportunities.

Get in touch with First Class Accounts Ovens & Murray today to discuss how we can help you reduce expenses, boost revenue, and streamline your business.

Key numbers to focus on in your business now

As a business owner, it’s always been helpful to have an understanding of accounting – but in the world today, it’s never been more important to have a good grasp on your finances and understand the key numbers to focus on in your business.

For many businesses, priorities have changed, customer behaviours have mutated and revenue streams have had to evolve and pivot in order to maintain a profitable business model.

To track, monitor and drive your financial performance in this new business world, it’s increasingly important to have a handle on your key financial reports and metrics.

Getting to grips with your financial reports

In the past, extra cash in the business may have been seen as a surplus that needed to be spent on something. Recent years have shown us that having these reserves is vitally important for the survival and long-term health of your businesses.

To truly be in control of this cash, it’s vital that you can understand your accounts, financial reports and dashboards and ‘see the genuine story’ behind your financial position.

So, what are the key reports to focus on? Let’s take a look:

Budget 

Your budget is the financial plan that's tied in with your strategic plan. In essence, the budget is your approximation of the money it will take to attain your key strategic goals, and the revenue (income) and profits you hope to make during this period. It’s a benchmark you can use to measure your actuals (historic numbers) against, allowing you to see the variances, gaps and missed targets over a given period.

Cashflow Statement 

A cashflow statement shows the flow of money into and out of your business.

Understanding these cash inflows and outflows in detail allows you to manage this ongoing process, allowing you to aim for a ‘positive cashflow position’ – where inflows outweigh outflows.

In your ideal positive scenario, you have enough liquid cash in the business to cover your costs, fund your operations and generate a profit.

Cashflow Forecast

Forecasting allows you to take your historic cash numbers and project them forward in time.

As such, you can see where the cashflow holes may appear weeks, or even months, in advance. This gives you time to take action, whether it’s increasing your income stream, reducing your underlying costs, chasing up unpaid invoices (aged debt) or going to lenders for additional funding.

Balance Sheet 

Your balance sheet shows you your company’s assets, liabilities and equity at a given point in time.

In a nutshell, it’s a snapshot of what your business owns (your assets), what you owe to other people (your liabilities) and what money and profits you currently have invested in the company (your equity).

Your balance sheet is useful for seeing what stock and equipment your business owns, how much debt (liabilities) you’ve worked up and what your company is actually worth. This is all incredibly useful information to have at your fingertips when making big business decisions.

Profit & Loss

Your profit and loss report - often referred to as your P&L. Your P&L gives you an overview of the company’s revenues, costs and expenses over a given historic period of time.

While the balance sheet is a snapshot, your P&L is more like a moving video. It shows you how your finances are progressing by demonstrating how revenue is coming in and costs/expenses are going out (rather than cash coming in and going out, as you see in your cashflow statement and cashflow forecasts).

There is a range of software and apps that you can use to generate the above reports so you can understand and focus on the key numbers in your business. For example Xero. 

Talk to us about software and apps to help you with the financial reporting and forecasting for your business

Should you buy or lease your business assets?

There are certain items of equipment, machinery and hardware that are essential to the operation of your business – whether it’s the delivery van you use to run your home-delivery food service, or the high-end digital printer you use to run your print business.

But when a critical business asset is required, should you buy this item outright, or should you lease the item and pay for it in handy monthly instalments?

To buy or to lease? That is the question

Buying new pieces of business equipment, plant, machinery or vehicles can be an expensive investment. So, depending on your financial situation, it’s important to weigh up the pros and cons of buying, or opting for a leasing option.

First of all, let's look at why you might to decide to buy the item.

Buying: the pros and cons

Pro: It’s a tangible asset

When you buy an item, you own the item outright and it will appear on your balance sheet as one your business assets. As such, by owning these assets outright you increase the perceived capital and value of your business. You can also claim the cost of the asset against your capital allowance for tax purposes.

Pro: It’s yours for the life of the asset 

Once you own the item, you have full use of the equipment for the duration of the life of the asset. Your use of the asset isn’t reliant on you being able to keep up regular lease payments, and if your financial circumstances change then you can sell the asset to free up the capital.

Con: It’s an expensive outlay

Paying for the item up-front is a large outlay for the business and will require you having the cash to cover this cost. Spending a large lump sum in this way may take cash away from other areas of the business, so you need to be 100% sure that this purchase is the right decision and a sound investment.

Con: You may require extra funding

If you don’t have the liquid cash available to buy the item outright, you may need to take out a loan. Asset finance is available from funding providers, but does tie you into a loan agreement that will add to your liabilities as a business – reducing your worth on the balance sheet.

How First Class Accounts Ovens & Murray can help

Our cashflow forecasting services can assist in determining whether you have the financial capacity to make an outright purchase. We can also implement appropriate apps to help you assess the impact on your working capital, ensuring you maintain enough liquidity to cover other business expenses.

Leasing: the pros and cons

Pro: Leasing has a cheaper entry point

If the item you need to purchase has a large price tag, leasing allows you to make use of the asset without the cost of buying it in full. For startups and smaller businesses with minimal capital behind them, this can make leasing a very attractive option. You may not own the asset, but you can make use of it – and this may be the difference between the success or failure of your business.

Pro: You can spread the cost

There is still an associated cost of leasing, but you can spread the cost over a longer period, making it easier to find the necessary liquid cash to meet your lease payments. With this money saved, you can then invest in other areas of the business, helping you to expand, grow and bring in more customers and revenue.

Con: You don’t own the asset

There are different types of leasing agreement. Under a capital lease, you do own the asset (once you’ve paid if off). But if you opt for an operating lease, this is a more short-term lease and you won’t own the asset at the end of the contract. Ownership does have its advantages (including being able to sell off the asset if required) so it’s important to consider what kind of leasing agreement you’re entering into and what the advantages/disadvantages may be.

Con: You may pay more in the long run

Most leasing agreements will attract additional costs and interest on your agreement, so you may well end up paying more than the market price for your asset in the long term. If you can cope with the higher cost, this is fine, but bear in mind that buying outright may have offered greater value.

Con: You may lose the use of the asset

If you can’t keep up your lease payments (due to poor cashflow for example) then the owner of the lease agreement may recall the asset. If this item is crucial to your business model, losing this key asset can have a profound impact on your ability to operate. In this respect, leasing is a more risky prospect, but also an easier option for businesses with less cash to splash.

How First Class Accounts Ovens & Murray can help

Our management accounting services ensure you have timely and accurate financial reports to make informed decisions about leasing versus buying. We can also help you understand your financials, so you can understand if you can meet your financial obligations

How to make the best choice for your business

Deciding whether to buy or lease your equipment isn’t always straightforward. It depends on factors like your financial situation, cash flow, and long-term business goals.

We offer a comprehensive cashflow forecasting and management accounting services to provide you with an accurate picture of your financial future. By implementing the appropriate apps, and with our support, you can review your current financial position, assess your cash flow, and look at your regular costs to help you decide whether buying or leasing is the right thing for the business.

Talk to us about whether buying or leasing is the best way forward.