Five points to consider when upgrading your commercial food processing equipment
Is your food processing equipment in need of an upgrade? If you are altering any equipment, they must be compliant with Standard 3.2.3 Food Premises and Equipment as part of the Australia New Zealand Food Standards. Cleaning equipment, grading equipment, sorting equipment, and peeling or skinning equipment, blending and mixing equipment, and mechanical processing equipment are all major investments in commercial food processing. As such, your business may be exploring commercial equipment finance options.
Here are five points to consider when upgrading your commercial food processing equipment:
1. Aging equipment may be less cost-effective
Though your equipment may be over a decade old — perhaps longer — aging equipment is less cost-effective than newer equipment. Inefficiencies, lower safety thresholds, and higher power consumption. The Mitsubishi 4-Wheel Battery Electric Counterbalance Forklift, for example, has an ECO mode, waterproof rating of IPX4, and electric power steering — features not found on older models.
2. Chattel mortgages and hire purchases for long-term assets
The usual type of finance for buying equipment is a chattel mortgage or hire purchase. Chattel mortgages and hire purchases give business the option to finance more than 100% of the value of their machinery to finance insurance, training, or other establishment costs such as installation. Both are functionally similar but have differences in where the equipment ends up on the books — with a chattel mortgage, it is an asset your business owns; in a hire purchase, the financier retains ownership. “These are intended for long-term, strategic purchases,” said Savvy Managing Director and equipment finance expert Bill Tsouvalas. “If your business has a five, ten, or longer plan to use the equipment, buying is the way to go.”
3. Leasing for short-term projects or seasonal ramp-ups
If you are doing short runs of niche products or need to ramp-up to fulfill larger orders, a lease may be a better option. There are two main types of leases — finance leases and operating leases. Finance leases give you the option to purchase your equipment at the end of a term by paying off the residual value payment (known as a balloon payment) on the equipment. An operating lease allows you to extend the term, trade in your equipment for an upgrade, or return the equipment to the financier if you don’t need it anymore. “This can be a flexible way to ramp up or down depending on need,” Tsouvalas said.
4. Upgrading lighting and water efficiency
Upgrading your lights and water can make significant contributions to your bottom line. In 2015, 19% of the world’s water supply was used for industrial food purposes. If you waste water, which is a precious commodity in Australia, it will quickly eat into your bottom line. Installing low-flow systems and using native plants in landscaping can help reduce costs long-term for a modest initial investment.
5. Talk to a broker
If all this seems confusing, don’t be afraid to talk to a specialist equipment finance broker to find out what options are available to you. They can help find funding that suits your operations and industry needs. Remember to talk to your accountant or financial controller first before making any decisions.
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