Purchase payback calculator

How to use the payback calculator

Most business purchases are made on gut feel. The van feels necessary, the machine looks like it'll pay its way, and the fit-out will "lift sales". This calculator puts numbers on that feeling in three steps: what the purchase earns, what it costs to carry, and what it does to your cash.

1. The purchase

Enter the all-up price, including delivery, installation and fit-out, not just the sticker price. Then estimate the extra profit or savings it brings each month. Be honest here. For a machine that replaces hire, it's the hire bill you stop paying. For a second van, it's the margin on the extra runs after wages. For solar, it's the drop in your power bill. Then add the monthly running costs the purchase adds, like fuel, servicing and insurance.

2. If you finance it

Enter any cash deposit, the term, and the estimated total cost of finance in dollars. We don't ask for an interest rate, because business loans are priced on each business's situation and any assumed rate would mislead most people. If you have a quote, add up every repayment and fee and subtract the amount financed: that's the total cost. Our guide to comparing business loan offers shows how.

3. Your cash position

Enter the cash in your business account and your fixed monthly costs. The calculator shows how many months of costs you'd still have covered after paying cash or paying a deposit. Many owners like to keep at least two to three months in reserve, more if income is seasonal.

Reading the results

• Pays for itself in: the purchase price divided by its net monthly benefit (benefit minus running costs). Under two years is quick; over five years means the purchase needs to keep earning for a long time.
• Monthly cash effect: what happens to your bank balance each month. Paying cash, you keep the whole net benefit. Financing, you keep the net benefit minus the repayment. If it's positive, the purchase covers its own repayment.
• Months of buffer: your safety margin after the purchase. Financing usually keeps more of it.

As a rule of thumb, financing makes most sense when the purchase covers its own repayment and paying cash would leave you thin. Paying cash makes most sense when you'd still have a comfortable buffer and nothing better to do with the money. Our guide on whether to buy outright or finance works through the decision in more detail.

An illustrative example

A landscaping business is looking at an $85,000 compact track loader. It currently hires one for about $4,000 a month of work, and owning it will add roughly $900 a month in running costs. It has $110,000 in the bank and fixed costs of $28,000 a month. Paying cash leaves about one month of buffer, which is uncomfortable heading into winter. Financing over four years with a $10,000 deposit, at an estimated $14,000 total finance cost, keeps more than three months of buffer while the loader roughly covers its own repayment. That's the kind of purchase financing was made for.

What the calculator can't tell you

It doesn't include tax: depreciation, the instant asset write-off, GST credits and interest deductions can all improve the picture, and your accountant can add them. It also can't judge whether your monthly benefit estimate is realistic, or whether the work will be there. Those are judgement calls, and they're exactly what we talk through on the phone.

Ready to talk about the real numbers?

If the purchase stacks up, the next step is finding the funding that fits it. Asking us doesn't involve a credit check; that only comes up once you decide to go ahead. We won't scatter your details across a list of lenders. One person looks at your purchase and your business and calls you with options. Please fill in the form accurately so the first option fits. Tell us what you're buying.