Due to the uncertainty surrounding today’s economy, you may be asking yourself, “Is now the right time to buy equipment?” As a Senior Financing Consultant with Beacon Funding, I help hundreds of businesses a year determine whether or not additional trucks will fit their budget. This article will outline some of the details I encourage my customers to keep in mind in order to make an informed decision when the time comes to grow.
Equipment Pricing: We are in a buyer’s market.
Due to a flood of equipment in today’s market, dealers are stocked with inventory and offering advantageous pricing. If your business is looking to expand it’s fleet or replace an out of commission unit this is an excellent time to utilize financing to conserve cash, maximize your tax write offs, and lock yourself in at a comfortable monthly payment.
Another avenue for securing profitable equipment for your business is through a private party sale. In our current environment, private sellers are offering their used equipment at a discounted price. Reliable used equipment can give you more bang for your buck and help your business get a faster return on investment. A common misconception is that only new equipment is eligible for financing. This is not always the case. Lenders who specialize in equipment financing, like Beacon, are still able to finance older equipment because they know the value of the truck. For example, it is not uncommon for us to finance heavy wreckers that are early 1990’s models. Tow truck financing can help you take advantage of market lows with the same benefits associated with buying a new truck from a dealership.
You can find our more about used equipment financing here.
How do I decide if it’s the right time to buy?
While we may be in a buyer’s market, the decision to acquire new equipment should come down to your own business’ need and ability to take on the equipment. Ask yourself the following questions to assess your businesses capacity to take on new equipment.
1) Are you seeing a rise in demand for your business or an opportunity to expand?
If an opportunity to grow has presented itself in your market, this may be a great time to stop hesitating and make your move.
For example, a customer of mine had started covering one of AAA’s territories at night because the territory service provider was unwilling to cover late night calls. We were able to work together to secure financing for additional equipment. This allowed him to provide service to the territory fulltime, almost doubling his market share over night! By utilizing a lease‐to‐own program, they were able to expand by spreading the cost of the equipment over a term length. The equipment pay for itself with the income it brings in month after month, plus providing the customer with a significant tax write of at the end of the year thanks to Section 179. He didn’t even need to come up with sales tax up front to register the trucks!
2) Do you have the staffing in place to get benefit out of the equipment?
An additional truck is only as good as its driver, and with a large number of people out of work in the country today chances are there is an experienced operator in your area that’s dying to get back behind the wheel. If you believe your market has enough work to keep a new unit busy, this may be an excellent time to add a hard working employee that will become an integral part of your success going forward.
3) In the next 3-6 months, will the demand for your business continue giving you the ability to meet the terms of your financing agreement?
Reading this you may be thinking, Heath, how am I supposed to figure that out? Fortunately, there are tools that can help. By using a breakeven calculator you can better visualize what you can afford and set a good budget.
How a breakeven calculator works
- Select your equipment type from the drop down
- Input the cost of the equipment you are looking to purchase
- The desired term length (36, 48, or 60 months)
- Click the edit pen next to the word “BREAKEVEN”
- Type the average revenue per job and click “MODIFY AMOUNT”
The results will calculate the amount of tows you need to perform each month to breakeven on your equipment. Compare this to your average monthly output to how this will impact your return on investment.
Remember! The goal shouldn’t just be to breakeven with your equipment. Factor this information into your other towing businesses expenses like fuel, insurance, marketing, repairs, staffing, etc.
You can try the breakeven calculator for yourself here.
So, is now the right time for you to add equipment to your business?
By considering your business’ demand, staffing needs, and your financial position, you’re well on your way to understanding if now is the right time for you to take advantage of the current buyer’s market. With this being said, you don’t have to make this decision on your own. Feel free to reach out to me directly for advice on how to plan your next expansion.