PERSPECTIVE
Pixabay
Liquidity issues cannot be masked and solved with quick fixes , but require diligent and focused improvement over time .
company ’ s commercial asset finance sales manager , Roxanne Mitchell . “ Businesses are often quick to offer debtors — which one can say are the essence of a business — as security on a deal or additional assets , when often they can use those same assets in a sale-and-lease-back transaction to release capital to serve as a cash flow buffer in tough times .”
Rental remains a popular choice for acquisition of assets when gearing is important . “ Businesses investing in yellow metal assets are susceptible to high levels of gearing due to the need for large fleets ,” Mitchell explains . “ The rental option allows companies to move their debt off their balance sheet and into their expenses in the income statement , thus decreasing their bottom line profits and tax payable .”
Particularly during tough economic times , liquidity is not only king , but is the entire kingdom , as the possible alternatives are foreclosure and bankruptcy . “ Companies often over-gear and undercapitalise , thus putting liquidity strain on the business , which can be alleviated through rental ,” she continues . “ In addition , less tax is paid and VAT can be claimed monthly on the rental amount .”
Mitchell stresses that liquidity issues cannot be masked and solved with quick fixes but require diligent and focused improvement over time . “ That said , many businesses respond to a poor economy by saving money or reducing workload , which only exacerbate the situation ,” she says . “ Positive business practices and sustainable growth are essential in a downturn .”
Demand for rental can be attributed in part to it being an inclusive cost , but , says Van Heerden , there are pros and cons . “ Rentals include the purchase price and cost of ownership , both marked up , and costs can mount up quickly ,” she points out . “ The nature and length of a project should be taken into account before a rental agreement is signed .
“ If it is short term or a one-off job needing specialised equipment , renting may make more sense . The risk , of course , is that if the machine is not used constantly , it is costing money rather than making it .
“ If the project is long term or there are several similar jobs lined up , then buying is probably better . And a multipurpose piece of equipment such as a forklift or loader is always a great asset on any jobsite .”
Even though outright ownership may be cheaper in the long run if the buyer has the skills and time to handle aspects such as insurance and maintenance , the saving may not compensate for the hassle , she concludes .
On the other hand , Dan Alford , contracts manager at Mega Pile Inland , comments : “ We buy only world-class geotechnical equipment , with brands like BAUER , Casagrande , and Commachio , in order to stick to our motto of ‘ Delivering innovative geotechnical solutions ’ for our clients .
“ Hiring only works if it is a short-term project . If you ’ re going to use these machines all day and every day , it becomes more cost effective to purchase reliable equipment ,” Alford adds . Overdraft financing is also worth a look if the requirement is buying assets quickly , but it must be weighed up against the effect on cash flow .
Certain OEMs offer funding options , but these place substantial asset risk on the supplier and may affect their own balance sheet . Operating leases , on the other hand , protect both customers and suppliers , as the asset is financed off the balance sheet , protecting key debt-to-equity ratios while freeing up cash flow and allowing concentration on core activities .
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JUNE 2018