The Smart Way To Acquire New Capital
No matter the size of a company every now and then there is a need for fresh cash flow to purchase new equipment, replace old flooring, or simply buy a new car park for the employees. Taking the wrong route of acquisition can seriously dent the company cash flow. That is why experts advise of having a third party do that. The reason – the most flexible and secure way is via hiring a purchaser, leaser or refinancer.
Let us dwell some more on that. Having a third party may secure a choice of new or second-hand equipment and even re-evaluation of existing one. Borrowing or any other forms of debt have been seriously overlooked as a liability to be strictly avoided. Yet, what most managers do not realise is that this may be the most reasonable solution. Here down we have listed the most common way of payment and investment together with their benefits and disadvantages.
- Cash flow is unpredictable and any significant purchase can cause imbalance. For example, buying equipment that turns out to be not suitable. Or there comes an emergency need for cash and it has already been used for the purchase. Owning an asset certainly seems more desirable, but the traps are as numerous. Most of the scenarios end with the use of overdraft, which is not the initial intention.
- Next in line is acquisition via hire purchase agreement. The main benefit is ownership of the equipment or asset, which will enable the owner to spread the cost in a term that is most suitable. All expenditures under this agreement and up to 200 000 can be allowable against taxable profit within the Annual Investment Agreement (AIA) – meaning that the capital is preserved and the cash flow stable. Also, the outright ownership is achieved at the completion of the agreement and the cost is already known at the start of it.
- Leasing is the best option for companies that do not need to own the asset. This option provides flexibility in regard to the cost and freedom to use the purchase as they prefer. Also, the cash flow costs are fixed with tax efficiency. And the VAT over the lease can be reclaimed on monthly bases and the use period can be adjusted to the needs of the company
- Refinancing allows the owner to release equity from the equipment already owned and redirect it elsewhere within the same company. This from experience has become the fastest and easiest way to improve the existing balance sheet. The asset is not moved but redirected not replaced. This will allow companies the use of cash, they could not acquire through lease or purchase agreement.
Whatever option is used the decision should be made in favour of cutting down expenses, growth plans, other minor costs such as repair and maintenance.