Kickstarting your coffee business with equipment finance

Sitting at your favourite café, sun streaming in from the windows, watching people talk and laugh and sip coffee – it makes some of us (the crazy ones!) want to open a café of their own. Like all businesses, you need capital to get it off the ground. In the coffee game, the second most important expenditure after your space is your equipment.

The focus of any good coffee house is, of course, the espresso or coffee machinery itself. It’s a performing asset – something you own or lease that generates revenue. Though equipment finance isn’t hard to find, picking the right kind can make or break your start-up café.

If your business is starting out, you need to keep long-term finances separate from short-term finances. This means using long-term loans to fund short-term inventory and vice versa. According to the ACCC, this is the most common reason for small business failure. You need to get funding (liabilities) that correspondS to the life of your equipment (assets). If you expect to get five years of use out of an espresso machine, you need to pay it off over that time; or you could run into trouble quickly.

There are two ways to fund the equipment your café needs to get started: leasing or purchasing your equipment with funds from a loan.

Leasing equipment is best if you want the latest and greatest kit. In this scenario, your business doesn’t own the equipment and can claim any payments as a business expense. Leases may also include maintenance as part of the agreement. But if you want to hand the machine back, it’ll have to be in good working order.

Owning equipment is the other option. You can use the equipment for as long as you want – and you’ll have to take on maintenance costs. Chattel mortgages and hire purchases are the two options you have for equipment finance. Chattel mortgages give you ownership straightaway and make your new equipment an asset. A hire purchase doesn’t give you ownership until the loan is paid off. This means your repayments are classified as business expenses. With both types of loans, you can borrow 100 per cent of the value of the loan. You can also claim interest paid, GST, depreciation, and claim the instant asset-write off.

If you’re undecided about leasing or owning, you may want to consider a finance lease. This works like a lease until the end when you’re given three choices: buying your equipment outright, trading your equipment in for something new, or hand it all back. Some may have exchange programs built into them.

Business finance expert and Managing Director of Savvy, Bill Tsouvalas says that equipment finance can be tricky but getting the option with the most flexibility is key. “When you’re starting out you need to be flexible. You can grow quite quickly and may need more machines – you don’t want your capital tied up so you can’t expand,” he says. “Your accountant will advise you on which method is best. The idea is to keep cash flow up as much as possible.”

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