In Part 2 of our series to a Lean Mean Fighting Machine Business we look at ways to Keep the Cashflowing in your Business.
You must try to maintain margins as much as possible – not just through more sales but by good cost management. Competitors may falter which may give an opportunity to increase prices and allow you to maintain margins. Supply, quality and reliability are just as important to customers as price. You need to convince customers you will be around for the long term.
Banks are now more stringent about lending. You need to go to them with good information, such as 3 years historical reports, which are accurate, as well as 3 years forecast of profit and cashflow. you will need to convince the Bank you can repay the funds and they will look at how you manage your own money as well as theirs.
Cashflow and Working Capital
Now more than ever you need to be able to ‘crystal ball gaze’. You need to be able to see where your cash will be in the future – 3, 6, 9 and 12 months out. You need to understand where your money is and keep it for longer in your bank account.
Where is the cash?
- Sitting on the shelves in stock
- With customers who haven’t paid yet
- With suppliers paid too quickly
- Jobs in progress that haven’t been invoiced yet
- Excessive Costs and Overheads
- Assets or equipment that should have been leased or hired.
The following information is to give you an understanding of Chattel Mortgages. it is a financial product that is commonly used for business owners which is why we have included the information here. The main attraction for the business is that the full amount of the GST can be claimed at the time of purchase.
IMPORTANT: You should consult your accountant for advice if this is the right product for you
A Chattel Mortgage is a business finance product where the customer takes ownership of a motor vehicle or equipment at the time of purchase.
How does a Chattel Mortgage work?
Under a Chattel Mortgage the finance provider funds the purchase of the vehicle/equipment. The Business owner takes ownership of the goods at the time of purchase. The financier then takes a mortgage over the goods as security for the loan. Once the contract is completed, the mortgage is removed giving the business clear title to the goods.
Balloons & terms
The Chattel Mortgage balloon is the amount that will need to be paid to the finance provider at the end of the Chattel Mortgage. Having a balloon put into your agreement makes the monthly lease payments cheaper and much more affordable. The decision of having a balloon or not is entirely up to you, you may choose to pay the loan down to zero which means once the final payment is made, you own the vehicle/equipment.
What are the benefits of a chattel mortgage?
- Chattel Mortgage terms range from 12 – 60 Months
- A Tax deduction is available if used for business use
- the Interest rate is fixed for the term of the Chattel Mortgage agreement
- Chattel Mortgage repayments are fixed for the term
- Lower interest rates due to the vehicle lease being secured against the vehicle
- No GST is charged on the monthly chattel mortgage payment
- Customers registered for GST can claim the GST that is included in the purchase price
Who should consider a Chattel Mortgage?
A Chattel Morgtage is suitable when you use your vehicle wholly or predominantly for business purposes. this means that the vehicle is used for business for more than 50% of the time. It’s also a great option if you would like to own the equipment at lease end.
What are the tax implications of a Chattel Mortgage?
- Monthly repayment or balloon amount is not subject to GST
- where the vehicle/equipment is used for business use, the hirer can claim “interest and depreciation” – or take advantage of the Asset Instant Write of Scheme. that is interest on the lease payments and depreciation up to the luxury car tax threshold or depreciation limit of $66,331 (as at 2018-19)
- GST is also claimable on the purchase price of the vehicle in one lump amount.
Are there other options?
Other options are Finance Lease, Commercial Hire Purchase or Novated Lease – all of which would be explained further by a finance Broker or your Accountant.