There are clear reasons why this feels safe. You own the gear free and clear, there are no ongoing repayments to worry about, and there is no bank looking over your shoulder.
However, as we head into the end of the financial year (EOFY) rush, it is worth looking at both sides of the coin. Draining your working capital to buy depreciating assets has its own set of strategic considerations, just as taking on finance carries its own costs.
Let’s explore the pros and cons of both approaches so you can have a more informed conversation with your accountant about structuring your next major purchase.
The difference between profit and cash flow
To understand the impact of equipment purchases, it helps to separate two things that can easily be confused in business: profit and cash flow.
You might be running a highly profitable operation on paper. Your profit and loss statement looks fantastic, and sales are rolling in. But if you take $80,000 of your cash reserves and drop it on a new forklift outright, that money is immediately removed from your liquid reserves.
The cash scenario
That $80,000 is now sitting on your warehouse floor in the form of an asset. To be clear, this asset is not dead weight; you own it outright, and if you ever found yourself in a tight spot, an unencumbered asset can often be used as collateral to secure finance and inject cash back into the business.
However, in the immediate term, that capital is no longer liquid. If an unexpected crisis hits or a major client delays paying their invoice for 60 days, you cannot use a fully paid-off forklift to make payroll or cover a surprise ATO bill.
The finance scenario
Financing allows you to match the cost of the asset to its useful lifespan. By spreading out the payments, the equipment can hit the ground running, bringing in income from day one. In many cases, the revenue generated by having that new gear operational can help offset the monthly loan repayments.
The biggest drawcard here is that your bulk cash reserves stay safely in your bank account, keeping your working capital free for operational expenses, emergencies, or unexpected growth opportunities.
The trade-off: comparing the costs
It is important to remember that financing is a service, and it isn’t free. Let’s compare the two strategies at a glance:
| Feature | Overall cost | Cash flow impact | Asset ownership | Future leverage | Debt profile |
| Paying with cash | Lower. You pay exactly what the asset costs, with no interest charges. | Heavy immediate impact. Liquid reserves are reduced significantly on day one. | Immediate, unencumbered ownership. You hold 100% equity from day one. | High. The owned asset can be used as collateral for future loans if needed. | No new debt is added to the business’s liabilities. |
| Using finance | Higher. You will pay interest over the life of the loan, increasing the total cost of the asset. | Minimal immediate impact. Costs are spread out over predictable monthly repayments. | The lender holds an interest in the asset until the loan is fully repaid. | Low. The asset is already encumbered by the current loan. | Adds a new liability to your balance sheet. |
The EOFY tax conversation
Around May and June, there is always a massive rush as business owners scramble to buy equipment before the EOFY deadline. A driving factor behind this is the common misconception that you must pay cash up front to utilise certain tax deductions or instant asset write-offs.
Depending on current legislation, this often isn’t the case.
With certain finance structures, like a standard chattel mortgage, your business generally takes ownership of the asset immediately. Because you own it from day one, your business may still be eligible to claim tax benefits similar to if you had paid cash. This can include claiming depreciation on the equipment, the interest paid on the loan, and the upfront GST on your next Business Activity Statement (BAS).
Why you need your accountant: Business structures and tax laws are complex, and ATO rules change frequently. We are finance brokers, not tax agents. Before you rush out to sign paperwork or buy machinery this EOFY, you need to have a direct conversation with your accountant. They are the only ones who can look at your specific books and tell you exactly how buying outright versus financing will impact your unique tax position.
Ready to Review Your Options this EOFY?
Running a successful business is about managing how, where, and when your money moves. For some businesses, the peace of mind of having zero debt and owning an asset outright easily outweighs the initial hit to cash flow. For others, holding onto liquid cash and paying interest over time is the preferred way to navigate a fluctuating economy.
If you are looking to upgrade your fleet, purchase new machinery, or invest in tools before 1 July, take the time to weigh up both sides.
Reach out to our team today for a confidential chat about your commercial lending options. We are more than happy to work directly alongside your accountant to help present the finance solutions available, so you can decide which path best suits your long-term business goals.
Please note:The information provided in this article is general in nature and does not constitute personal financial, tax, or legal advice. It has been prepared without taking into account your specific objectives, financial situation, or needs. Before acting on any of this information, you should consult with a qualified professional, such as your accountant or financial adviser, to determine if it is appropriate for your business.
