Startups, SMEs and businesses of any size thinking about making large capital purchases for their company are recommended to plan purchases in advance, if at all possible. Of course, there are times when large purchases are unavoidable, for example, if a business vehicle needs replacing or the company IT infrastructure is beyond repair. On the whole, though, any capital expenditure needs to be timed to take advantage of any tax breaks that could be available. In this article we look at when is the right time for making a large business purchase?
Planning business expenditure
Your business expenditure planning really falls under the auspices of the accountant or finance department. Capital budgeting helps identify potential returns from any investment and should ensure any major purchase provides a payoff to the business.
Keep cash flow healthy
The health of your business’ cash flow is another important factor to consider prior to making any major buying decisions. One important consideration is that making any major purchase just before your financial year end helps cut profit levels down and can be a good way to utilise business profits over the longer term. But, certainly, if you plan to invest in machinery or larger items for your business you may want to consider the benefits of leasing or equipment finance alongside any deals to buy outright.
Buy at the right time
Buying major products at the right time can also impact upon the price paid. Many suppliers offer seasonal sales and end of quarter or financial year sales in order to clear excess inventory. So, it’s important to shop around as much as possible prior to making any decision to buy outright.
It’s important to look very carefully at all the tax implications when buying large items of machinery, equipment or vehicles for your business. Capital allowances mean you can claim a percentage of your upfront costs back from the outset and in following years. However, HMRC do change the rules on capital allowances on a regular basis, so it’s a good idea to check the current situation with your accountant before making any purchase.
Assets need to be used
And, finally, any major purchase of equipment or machinery needs to be justified via business growth or the likelihood of regular, continued use. There’s very little benefit in buying equipment or machinery that sits idle for a large proportion of the working day.
Making a large business purchase – where to find out more
If you need to make a large business purchase, take a look at our information on Asset Finance.
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