Buying the excavator

Tahlia's civil business had grown on hired machinery, which is the sensible way to grow. The trouble was that availability had become harder to line up, and a hire plant that turns up two days late is an expensive problem on a civil job with a programme attached to it.

With a new contract scheduled she wanted an excavator and supporting gear of her own. What she did not want was to hand over the full purchase price and then start the contract short of money for fuel, wages and mobilisation - the costs that land before the first progress claim does.

We went through the supplier quote, what the machine would actually be used for, the finance commitments already in place and the projected cash flow around the new contract. Then we compared lenders and showed how three levers - the deposit, the term, and whether to take a balloon - changed the repayment and the total cost between them.

The balloon deserves its own conversation, because it is where equipment finance quietly goes wrong. A balloon lowers the monthly repayment and leaves a lump sum due at the end of the term, which has to be paid, refinanced or covered by selling the machine for at least that much. None of those three is guaranteed.

Tahlia chose a $50,000 contribution and $270,000 of asset finance, with no balloon. Her accountant reviewed the ownership and tax treatment separately, which is where that question belongs. We then lined the lender's asset checks and settlement requirements up with the supplier's delivery schedule.

The equipment arrived ahead of the scheduled work rather than during it. The business relied less on hiring that particular machine, and kept cash available for the operating costs of the contract.

The repayment went into the business's ongoing cash-flow forecast as a known fixed commitment, which is what a no-balloon structure buys you. One contractor, one package, one structure.

Buying beats hiring when availability starts costing you more than the machine does. On the structure, the lowest monthly repayment and the lowest total cost are rarely the same choice: a balloon moves money to the end of the term, it does not remove it. Decide which of the two you are optimising for before you compare quotes.