Holding off on replacing older assets?

When economic times are tough, it is understandably difficult to commit to new asset purchases or even replace existing equipment. The natural reaction is to extract more economic life out of your existing gear, but over time, the benefit of doing that can reduce.

This is because inevitably, repair and maintenance costs will increase as equipment

ages, particularly if that asset is being used as a front-line unit.

The other problem with maintenance, and more so with unscheduled breakdowns, is the downtime associated with repairs. Whilst the loss of revenue during downtime often isn’t measured, it represents a real “cost” to the business. If breakdowns become more persistent, there is also the risk of reputational damage to your business.

There are a couple of other factors to consider:

• What is the optimum selling point for used equipment?

  
  

In real terms depreciation of an asset’s value can increase markedly once it

passes a certain mileage or number of hours. Again, this is an unmeasured

expense, but it will potentially offset the financial advantage of holding on to

older equipment for longer

• What is the current replacement cost and availability?

  
  

With low sales volumes, it is natural for dealers and equipment resellers to

discount asking prices to encourage sales. As sales volumes return, the level

of discounting will reduce.

It is only a couple of years ago that the supply timeframes for new equipment

were significantly stretched due to demand. In general, wait times are now

much lower.

• Depreciation

  
  

As part of the 2025 budget, the NZ Government introduced “Investment Boost”

which is a form of accelerated depreciation. It does not change the total value

of deductions you claim over the life of an asset. However, it does mean you

can claim a greater deduction in the 1st year. This means you pay less tax in

that year. Because money saved today is worth more than money saved later,

this helps you save more overall. In addition to normal depreciation rates, an

additional 20% can be claimed in the first year of ownership.

The key lies in trying to understand all of the costs associated with the asset

replacement, particularly the unrecognised expenses and weighing those against the borrowing cost of a new asset.

It is only prudent to carefully weigh costs in difficult times, but if you have an asset

that is past it’s replacement date and causing concern due to increased operating costs, we are more than happy to have a chat about the financial cost of replacing it.

This will allow you to make an informed choice and act confidently when the time is

right.

Contact Whiting Financial Services to discuss your business finance options.