A comparison of finance options for loaning new equipment, the ONS’s latest business survey results, and the Digital Markets, Competition and Consumers Act becomes law
We start the week with helping you compare which finance option is best for your business when it comes to investing in new equipment or vehicles, the latest results from the ONS and how the Digital Markets, Competition and Consumers Act could affect you.
Choosing the best way to finance business asset purchases: Lease, Contract Hire or Hire Purchase?
Picture this: your business is booming, and it’s time to invest in some new equipment or a company vehicle. But with so many financing options out there, how do you decide which one of them is right for you? Let’s break down three popular choices – leasing, contract hire, and hire purchase – so you can make an informed decision without getting lost in financial jargon.
Lease
Leasing means renting an asset (such as machinery, vehicle or computer) from a finance company for a set period. After the lease term ends, you usually return the asset, although sometimes there is an option to be able to buy it.
Short-term rentals where the payments cover the asset’s use, rather than its full value, are known as operating leases. At the end of the lease, you return the item and can lease a newer model.
Longer-term rentals where the payments cover the full value of the asset over time are known as finance leases. The leasing company legally owns the item, but you use it as if is yours.
Here’s why leases can be good:
- Better cashflow: Low upfront costs and spread-out payments help keep your cash in hand.
- Stay updated: Easily upgrade to newer equipment or vehicles.
Here are some things to think about with leases:
- No ownership: You don’t ever own the asset.
- Higher long-term cost: Over many years, leasing can be more expensive than buying.
Contract Hire
Contract hire is often used for vehicles. Contract hire is like leasing, but usually includes maintenance and servicing in the monthly payments.
Here’s why contract hire can be good:
- Fixed costs: You’ll know exactly what you’ll pay each month, including upkeep.
- Cash flow friendly: Like leasing, it spreads out the cost.
Here are some things to think about with contract hire:
- Mileage limits on vehicles: Exceeding agreed mileage can cost extra.
- No ownership: You can’t keep or modify the vehicle.
Hire purchase
With hire purchase, you buy the asset over time. You make a deposit and then regular payments. Once all payments are made, you own the asset.
Here’s why hire purchase can be good:
- You own it: At the end, the asset is yours.
- Predictable payments: Fixed monthly payments make budgeting easier.
Here are some things to think about with hire purchase:
- Bigger upfront cost: Requires a higher initial deposit compared to leasing.
- Maintenance responsibility: You’re in charge of upkeep and repairs.
- Cash flow impact: Higher monthly payments can strain cash flow initially.
Making the decision
To choose the best option for you, you may want to consider the following points:
- Cash flow: How much can you afford each month? Leasing and contract hire usually have lower monthly payments.
- How long you’ll use it: If you need the asset short-term or it becomes outdated quickly, leasing or contract hire might be best.
- Ownership needs: If owning the asset is crucial, hire purchase is the way to go.
- Financial impact: Leasing keeps liabilities off your balance sheet, while hire purchase adds both an asset and a liability.
Conclusion
Choosing how to finance your new asset doesn’t have to be complicated. By considering your businesses cash flow, how long you’ll need the asset, and whether ownership matters, you can pick the best option for you.
Tax can also be a factor in the decision. For personalised advice, please feel free to contact us at any time. Our team of experts is ready to help you navigate the complexities of asset financing and find the best solution for your business.
Business Insights
The Office for National Statistics conducts a fortnightly Business Insights and Conditions Survey (BICS). The voluntary responses received from the latest survey revealed the following insights.
Worker shortages decreasing
21% of businesses with 10 or more employees said that they are experiencing worker shortages. This has reduced since May 2023 where 28% of businesses were reporting shortages at that time.
More sales are happening
21% of businesses reported that their turnover had decreased in April 2024 when compared with March 2024. This is a similar proportion to last month.
However, 19% reported that the turnover was higher. Last month this was 16%, and so suggests that, in line with the recent exit from recession, there is more sales activity happening.
This seems to be feeding into optimism for businesses, since 18% of businesses reported expecting a drop in turnover in June 2024, compared with 22% who expected lower turnover in May 2024. 59% of businesses expect turnover to stay the same, compared with 56% last month.
National Living Wage increases hard to absorb
13% of businesses said that the price of their goods or services sold in April 2024 had increased compared with March 2024, compared to 9% reporting similarly last month. This is the largest proportion since June 2023 and many businesses have commented that they have been unable to absorb the cost of the National Living Wage increase.
To review the information in full, see: https://www.ons.gov.uk/businessindustryandtrade/business/businessservices/bulletins/businessinsightsandimpactontheukeconomy/23may2024
Digital Markets, Competition and Consumers Act becomes law
The Digital Markets, Competition and Consumers Act has now received Royal Assent and become law in the UK. This new legislation aims to protect consumers and promote fair competition, particularly targeting large technology companies.
Here’s a summary of the key points of the Act:
Consumer Protection:
- Clearer Subscriptions: Businesses must provide transparent information about subscription costs, remind consumers when trials are ending, and make it easy to cancel subscriptions.
- Hidden Fees: All costs, including any hidden fees, must be clearly stated upfront. This should end the problem in online shopping of being caught by unexpected charges when checking out.
- Fake Reviews: The Act bans fake reviews, ensuring consumers can trust the feedback they see online.
Empowering Regulators:
- Competition and Markets Authority (CMA): The CMA now has more power to stop big tech companies from unfairly disadvantaging competitors and consumers.
- Market Conduct: The CMA can set specific rules for powerful tech companies to ensure fair treatment of users and competition.
Penalties:
- Companies that break these rules could face significant fines, potentially in the tens of billions of pounds.
- The CMA can enforce these rules directly, ensuring swift action against violators.
Additional Oversight:
- The Act also gives new powers to the CMA to monitor road fuel prices to help prevent any malpractice in that sector.
In essence, this Act is designed to create a fairer, more transparent market environment, especially in the digital space, benefiting both consumers and businesses by ensuring honest practices and fair competition.