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Capital Investment vs Percentage return/possible income


drinksloe
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Alright

 

Just looking for a bit of advice, lately been heavily thinking about a change/pipe dream, which would involve a big capital investment but i do think there is the work possibly just wether the money/returns are there to justify it.

Up till now any investments have just been new saws/vans/pick ups etc as i just work as a hand cutter/femcer (but to be fair quite happy doing it)

So big money inestments are all new to me really

Just reading another thread recently and thinking mibee time to man up and have a go, as i have been thinking about it for a while now.

 

If u were going to invest say £50K in a new machine and its attachments,  wot sort of ball park return would u like/need to see off it (only real overhead be 1 man operating, althou plus decent pick up trailer to move it) either day rate or annually.  A lot of the work would be on a day rate basis.

How many years would u be expecting to get ur money back over to replace it? 

Or how much of the profits would u be setting aside, so not really profits? Have heard some smaller forestry machine boys moan they think they are doing great with money in the bank then its time to replace a machine and there back to where they started

 

To make the risk worth it u'd need to be turning over some serious ammounts of money the way i'm seeing it the now.

Esp coming from a relatively low turnover but also low expenses so a large % of wot u make is profit, i'm guessing i'd have to turnover2/3 times wot i do now to take home the same wage and pay for wear/tear and replacing machine/trailers/pick ups etc

 

Would the % or figures change from an owner operator compared to a machine operated by an employee or even worse hired out self drive? (Due to fact not been looked after as well)

 

 

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There is no standard rate of return because each individual has their own perception of risk and what an acceptable return should be. £50k on bank deposit would earn peanuts but is almost risk free. The return on £50k invested in a machine depends on how you manage to utilise it. To help you in your decision making process I suggest the following:-

1. Get a quote from a finance company for what you have to pay on a monthly basis if you leased or HP'd the kit. (Do this even if you have the cash in the kitty to buy outright). 

2. Talking the info from 1 above, add in your other business costs/ required drawings and compare the total with what your current turnover is. For this exercise I would include the capital repayment as well as interest (because for the duration of the agreement to need to generate the cash to make the repayments). If the total exceeds your current turnover, how big is the gap and determine how easy it would be to cover it from new income generated by the new kit. The day rate is likely to be determined by the market so how many days work would you need to get in order to plug the gap and is it achievable? Do you have the cash reserves to keep going while you build up the customer base?

3. The problem you describe following the replacement of a machine arises because subconsciously, people tend to base their costings on the longest possible life of the asset.  If you follow step 1 above and finance an asset over say 3 years, if the asset has a 5 year life you have a 2 year opportunity of building up a deposit for machine replacement (or you could take more out yourself). 

 

 

The key to the decision making process is to be realistic about likely take up of your new service. How competitive is the market for that service? Does demand exceed current supply or will your entry into the market cause the competition to reduce their prices to maintain a competitive advantage?

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Cheers inoff. I know its hard to give proper advice when its so vague and forestry/arb is such a wide industry

 

To be honest i don't know of any other company doing something similar and even after buying the machine it will have to be heavily adapted to suit wot i want it to do (but hopefully my designs in my head it should be 'modular'?? so easily converted back) for more normal work

To be honest i've struggled to find the right donor machine to start with but think i may be o the right track now.

Also the customising will need some proper engineering so its trying to get a rough price without wasting too much of the welders time.

Still a bit of head scracthing to do that even about tthe design and costs as well as other costs

 

It is quite a small niche market but i do think it might be there, i'll be meeting a few big landowners shortly so will run the idea past them, as there my target market.

 

Was hoping there was going to be some easy answer  (x% of investment per day/year??) so i could go to the landowners with a ball park figure.  I know 1 quite well who's a really decent bloke and also quite well connected, i'll bounce a few ideas of him and see wot happens

 

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There are a lot of ways of looking at machine ownership so everyone’s approach may differ.

personally when I buy a digger and Iv just got a new one on order so this is fairly relevant to me at the moment.

Look at what equivalent machines are going for in say 5 years/10years or however long you would plan on keeping the machine before replacement. This will give you a good idea of how quickly it will depreciate and from this you can work out how much the machine is going to cost you per working hour (for example).

Once you know this figure you can add profit as you see fit/usual buisness running costs etc. You should be able to work out your overall hourly running cost for the machine and thus whether that is a figure you think you will be able to achieve.

 

Hire Purchase is a good way of looking at it as has already been mentioned- I would want the machine to be doing enough work for itself to cover the finance repayments, once it is paid off this is when it really earns you money. If you say plan on keeping the machine for 6 years. Pay it off in 3 via HP and the following 3 it will earn you money. When it comes to replacement the resale cost should cover deposit on new machine and off you go again.

works for me but as said plenty different ways to look at it.

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5 hours ago, drinksloe said:

To be honest i don't know of any other company doing something similar and even after buying the machine it will have to be heavily adapted to suit wot i want it to do (but hopefully my designs in my head it should be 'modular'?? so easily converted back) for more normal work

To be honest i've struggled to find the right donor machine to start with but think i may be o the right track now.

Also the customising will need some proper engineering so its trying to get a rough price without wasting too much of the welders time.

Still a bit of head scracthing to do that even about tthe design and costs as well as other costs

 

It is quite a small niche market but i do think it might be there, i'll be meeting a few big landowners shortly so will run the idea past them, as there my target market.

 

 

 

 

I think you should  forget buying a machine at this point and crack on with the design and development of the gadget. If its modular you can always trial it on a hire machine or machines until you find one that suits what you are doing. The last thing you need at this stage is to be trying to develop an invention whilst paying 50k`s plus of finance.

 

Bob

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