Getting new equipment is a big choice that can help you grow and work better. Whether you’re a small business trying to get bigger or a large company upgrading your machines, equipment financing can be a smart move.
In this article, we’ll show you how equipment financing can generate a positive return on your investment and how Beacon Funding’s breakeven calculator can show you. This handy tool lets you figure out how much money you can make from your investment and how much work you need to do to start making a profit.
In this article…
- Understanding Equipment Financing
- Calculating ROI with Beacon Funding’s Breakeven Calculator
- How Equipment Financing Pays for Itself
- Maximize Your Business’s Potential with Equipment Financing
Understanding Equipment Financing
What is Equipment Financing?
Equipment financing is a way for businesses to get the machines and equipment they need without paying for everything upfront. Instead of using all their money at once, they can borrow the money or lease the equipment and make low monthly payments over time. This helps businesses save their money for other important things while still getting the equipment they need quickly.
Benefits of Equipment Financing
- Preservation of capital: When you finance equipment, you don't have to use all your cash right away. This means you can save some money for other important things, like paying bills or investing in other parts of your business.
- Access to better equipment: Financing allows businesses to get better and newer equipment that they might not be able to afford upfront. This means they can work faster, make better products, and stay competitive in their industry.
- Tax benefits: There are many tax benefits to financing or leasing equipment. Sometimes, the interest you pay, or the depreciation of the equipment, can be deducted from your taxes, which helps save money.
- Flexibility: Financing equipment often comes with flexible payment options. Businesses can choose how long they want to make payments and find a plan that fits their budget. This makes it easier to manage finances and reduce stress.
How Equipment Financing Boosts Earnings
One big advantage of equipment financing is that it can help businesses make more money than they spend (positive return on investment). For example, if a business finances a new screen printer that helps them make more products in less time, they can sell more and earn more money. The extra money they make can cover the cost of the equipment, monthly expenses, and generate profit.
Equipment financing is a smart option for businesses that want to grow and be more successful without using all their cash at once. It helps them get the equipment they need, work better, and make more money in the long run.
Calculating Potential ROI Before Financing Equipment
If you want to figure out how much profit your business stands to make after financing equipment, this tutorial will guide you.
*Please keep in mind these examples do not account for taxes.
How to Calculate Your Estimated Monthly Profit
Step 1. Determine your expected monthly gross revenue.
This should be the monthly amount your business stands to generate with your financed equipment.
For example, a towing business might complete 5 – 10 tows per day with a single truck. Each tow generates $75 to $125 per day. By calculating an average of 7.5 tows generating an average of $100 per day, it’s reasonable that a single truck can generate $750 per day.
That truck can earn $22,500 per month in gross revenue!
Step 2. List your expected monthly expenses.
This includes the costs associated with operating your equipment. You do this by identifying and totaling up all your expenses.
For instance, a towing business might have the following monthly expenses:
- Insurance premium: $825
- Labor costs for the operator: $3,600
- Miscellaneous expenses (gas, materials, supplies, inventory, etc.): $2,000
- Total monthly expenses: $6,325
Then, estimate your monthly financing payment for the needed equipment. For example, for a towing business that wants to finance a $55,000 tow truck at a 60-month desired term length…
...their estimated monthly payment could range from $1,041 to $1,457 per month.
If that towing business decided to finance their truck for the median financing payment of $1,249, it would bring their total monthly expenses to $7,574.
Now, consider the specific monthly expenses for your business. What are they? What equipment do you need to finance? Think about it!
Step 3. Calculate your monthly profit.
This is the net amount when you subtract your monthly expenses from your monthly gross revenue.
Using the example of a towing business, you can expect the following scenarios:
| |
Low Financing Payment |
Median Financing Payment |
High Financing Payment |
| Gross Revenue |
$22,500 |
$22,500 |
$22,500 |
| Expenses |
$7,366 |
$7,574 |
$7,782 |
| Estimated Monthly Profit |
$15,134 |
$14,926 |
$14,718 |
After their monthly expenses and financing payments, the long-term profits for the towing business after financing a single truck would extend beyond the first month. That’s a great return on investment from one financed truck!
Low Financing Payment
| 1-Month Estimated Profit |
1-Year Estimated Profit |
5-Year Estimated Profit |
| $15,134 |
$181,608 |
$908,040 |
Median Financing Payment
| 1-Month Estimated Profit |
1-Year Estimated Profit |
5-Year Estimated Profit |
| $14,926 |
$179,112 |
$895,560 |
High Financing Payment
| 1-Month Estimated Profit |
1-Year Estimated Profit |
5-Year Estimated Profit |
| $14,718 |
$176,616 |
$883,080 |
When your financing agreement ends, your business can look forward to even higher profits! You'll no longer have monthly payments, freeing up cash, and the new equipment will keep boosting productivity and efficiency.
How Financing Equipment Pays for Itself: 4 Benefits for Your Business
When you use financing to get new equipment, it can help your business in many ways.
First, it helps with cash flow because you don't have to spend all your money at once. This way, you can use your money for other important things like marketing, paying employees, and other operational costs.
Second, it makes financial planning easier because you have predictable payments each month. This helps you manage your budget better.
Third, financed equipment can also give you tax benefits like deducting the or writing off the entire purchase. Having new equipment can also improve efficiency and productivity, allowing your business to take on more projects and attract more customers.
Fourth, buying equipment with financing gives you access to better and newer technology that you might not be able to afford otherwise. This can lead to better quality work, which helps your business grow and stay stable.
Maximize Your Business’s Potential with Equipment Financing
Equipment financing is a smart way to grow your business and make more money. If you’re evaluating purchasing equipment, use Beacon Funding’s equipment financing calculator help determine which piece best fits your budget.