Oily Rag: Buy preloved, it's good business cents

By Frank, Muriel Newman

Alot of oily raggers not only live off the smell of an oily rag, they also run their businesses off the smell of an oily rag. Be it business or pleasure, the net effect is the same - more dollars in your pocket instead of someone else's.

A reader asked us about the pros and cons of leasing versus buying an office photocopier, so we have crunched the numbers. We asked a well known equipment supplier to give us a couple of options. A new machine would cost $5995 (a pretty fancy one, admittedly), while leasing a machine on a 48-month term would cost $177.56 a month.

The ownership deal is pretty straightforward. You pay for it, you own it, you claim depreciation for tax purposes at 40 per cent a year on the diminishing value, and you can sell it.

The leasing deal is more involved. You don't own the machine, so it's not yours to sell at the end of the 48 months. If you want to opt out of the lease agreement before the 48 months you will be liable for the remainder of the 48 payments - even though, having returned the machine, they may have leased it to someone else or sold it. The total lease payments over 48 months are $8523, including $2528 in interest repayments. Assuming the machine is leased for the full 48-month term and has a resale value equal to its book value at that time, the effective interest cost on the money is 24 per cent (higher than credit card interest rates!).

And that's the best case scenario - it would be a heck of a lot worse if the contract were terminated early.

A third and better option would be to buy a second-hand machine. A good used machine that does pretty much the same thing as the $5995 new one could be bought for about $3000.

Now to accommodation matters. When making motel reservations always ask for a "corporate rate". Sometimes they will fob you off but often they are only too happy to give you a deal. If you are a regular customer then you certainly should receive a discount. If they don't offer a corporate rate, ask if they are running any "promotions or packages". Alternatively, shop around online. Check the websites of favourite hotel chains. They may have online promotions.

Have a look at www.lastminute.co.nz - it does not even need to be a last minute booking to get a deal; you can book weeks in advance. One oily ragger recently booked a hotel in Tauranga at $89 instead of the normal room rate of $120. That's $31 they saved - a 25 per cent discount!

Big Fat Lazy Costs. These are costs that contribute nothing to the success of the business but sit around because no-one has taken the time to review them. In one case a business was able to save $3000 a year by putting its cleaning contract out to tender.

That Big Fat Lazy $3000 saving went straight through to the bottom line, where it should be.

Let's not forget that cutting costs produces an instant increase in profit and is a lot easier than trying to win new business. A business that adds a 25 per cent margin to the cost of goods needs to increase sales by $15,000 to add $3000 to the bottom line.

Frank and Muriel Newman are the authors of Living Off the Smell of an Oily Rag in NZ. Readers can submit their oily rag tips at www.oilyrag.co.nz.

- Hamilton News

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