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There's a lot to know if you're new to financing heavy equipment for the first time. To help, we've put together this guide with resources and tools to get you started and make sure you're prepared when you’re ready to apply.
There are many ways to acquire Cat® equipment based on your business needs. Financing equipment allows you to spread out the total cost over a negotiated period of time. Businesses typically choose equipment financing for these reasons:
One of the key benefits to equipment financing is building equity with ownership. When the loan is paid in full, you will own the equipment outright.
Before you are approved for an equipment loan, the lender will evaluate your credit worthiness against several factors.
An equipment loan enables qualified customers to borrow money from a lender for a specific period of time. Typically, a down payment is required and can be made via one of the following three ways:
Cat Financial offers competitive rates and flexible terms to match the unique needs of your business. Plus, qualified customers can take advantage of custom payment schedules that align with your business cycles.
Equipment leases are a great solution for short-term equipment needs or if you only need a machine for a specific project. Leasing equipment offers many benefits to your business including:
Cat Financial offers finance and operating leases to qualified customers. Dive deeper into equipment leasing and the benefits to your business.
Use these online equipment financing calculators and resources to help you determine how much you can afford, your monthly payments and total ownership costs:
Use the Cat Equipment Affordability Calculator to calculate how much machine you can afford, which can influence which option you choose to acquire Cat equipment. Be sure to have these available to ensure your calculations are accurate:
The calculator also allows you to choose whether or not you want a purchase option and its desired amount.
The Cat Equipment Payment Calculator can help you determine your monthly payment amounts.
To calculate your payment, input your estimated figures for the following categories:
Our equipment financing options comparison chart provides a side-by-side view of the key benefits as well as other services that can be conveniently packaged with your machine to make ownership easier.
We’ve got you covered from planning and budgeting to managing cash flow, analyzing your balance sheet, and creating a bidding template to help you win more projects.
A business plan outlines specific steps your company can take to successfully reach your goals. An effective business plan can also help you carve a path for growth while running an efficient operation. Your plan will include your executive summary, which describes what your company does, along with information like financial projections you can use to guide your equipment needs and financing.
Some of the advantages of developing an effective business plan include:
Create clear processes and workflows: The plan can outline important protocols and the business's hierarchy for your team.
Identify issues early: Use your business plan to identify and address potential obstacles like higher-than-expected costs or redundancies before they impact your operation.
Establish financial goals: Your business plan will help you allocate the right resources to different aspects of your operation.
Anticipate business needs: A detailed business plan will help you determine your future equipment needs and how you will cover costs.
Key components of an effective business plan components:
The executive summary of a business plan is like an introduction to or overview of your entire plan. This section should outline what you expect to do, what to expect throughout the plan, your mission statement, a description of your business and other necessary background information.
While the summary is the first section of your plan, write it last so you understand the plan and adequately summarize it. The executive summary sets the tone for the rest of your plan, so you want it to interest your readers so they keep reading.
The marketing plan could be considered one of the most important section because it describes how to market and sell your goods and/or services. Consider how you'll promote your services to your target clients. Outline your marketing and sales strategies, selling proposals, what sets you apart from the competition, who your target audience is and how you'll reach them.
The financial section may include subsections such as funding and projections. If any part of your business plan requires funding, outline those needs here and how you'll use the money. You can also use this section to define your financial goals and expectations. Be sure to include your anticipated revenue and projected earnings based on market research so it's clear what level of success you anticipate from the plan.
Effective business plans should include a competitive analysis. This section is where you can provide insight into how your company compares to your competitors. By breaking down strengths and weaknesses, you can identify ways to move ahead of your competitors.
Business plans can include various sections depending on the information you need to convey. While this list isn't all-inclusive, here are a few other elements you may include in your business plan:
Operating plan: This section outlines how your business operate. Include details regarding personnel, departments, location, shipping logistics and any other information relevant to your business's operations.
Market analysis: Some businesses may include a market analysis in their marketing plan or competitive analysis, though many make it a separate section. This area can be used to define your target audience to get a deep understanding so you can effectively target them.
Management and company description: You may also include a section dedicated to describing your business and its management. For example, you may introduce managers or leaders and indicate the ownership structure of your business.
Budgeting is one aspect of the financial planning element of your business plan. A budget is a distinct financial document that allows you to project future income and expenses — without it, you could spend more than you generate in revenue without realizing it, which can have severe financial consequences.
A sound budgeting process can also be invaluable when making crucial business decisions. For example, if you're considering a significant investment like Cat equipment or facility expansion, you'll know if you have the cash on hand to purchase it outright or whether you should consider financing or leasing.
First, you should determine how you will build your budget. This decision informs nearly everything that comes afterward.
Build your budget in a spreadsheet: When you create your own budget in a basic tool like a spreadsheet, you have total control over the process, including font choice, size of each spreadsheet cell, and formulas. You also have control over the information it contains and won't need to purchase software or pay for updates The downsides include the extra work of constructing the spreadsheet, the need to understand basic spreadsheet functions to create an accurate budget and the potential for human error.
Build a budget using specialized software: A wide range of purpose-built programs for creating budgets is also available. The benefits of using software include the support it offers as you create and update your budget, such as providing direction through the user interface, automating calculations and offering reminders about updating the budget. Downsides include the additional cost that comes with buying the software, the potential need to pay for a subscription or updates and the hassle of exporting budget information if you need to switch to a different software or platform.
Once you make this decision, you'll have a much better idea of what to focus on. If you build your own budget, consider using a pre-existing template on a web-based provider like Google Sheets. If you plan to use purpose-built software, take the time to look up reviews of different programs.
Identify your income sources and add the totals together to determine how much money comes into your business each month.
Calculate your company's revenue rather than your profit. Revenue refers to all the funds your business collects before deducting expenses. Profit refers to the funds that are left after your expenses are deducted. After you identify each of your income sources, calculate your company's monthly income.
Perform these calculations for several previous months to get more accurate numbers. With this information in hand, review for seasonal or monthly patterns and changes over time. For example, your income may increase in the summer and drop after the winter holidays. When you understand when your leaner months may occur, you can prepare ahead of time.
Next, add up your fixed costs. You pay these costs regularly, such as monthly, daily, weekly or yearly. Fixed costs for your business may include:
After you identify your fixed costs, subtract them from your total revenue.
Along with fixed costs, you should account for your company's variable expenses. These costs change from month to month or day to day depending on how much you utilize the service.
Many variable expenses are essential to keep your business running, so it's crucial to include them in your budget. Some variable expenses aren't necessary but are nice to have. These costs are known as discretionary expenses, and you can include them in your variable expenses.
Variable expenses include:
Identifying and assessing your variable expenses can help you lower these costs during lean months. During months with higher profits, you can increase your spending on variable expenses to benefit your business.
A contingency fund is used to cover unexpected, one-time costs. You must be able to cover these costs when they arise, even when your business budget is tight. One of the key steps of how to create a budget for a business is setting aside extra money, so you can avoid the worry and stress of unexpected costs.
It can be tempting to spend surplus income on your variable expenses, but putting aside funds for emergencies is essential. By saving for contingencies, you're prepared when heavy equipment unexpectedly breaks down and needs to be replaced.
Cash flow refers to the money that travels in and out of your business. A positive cash flow means more money comes into your business than goes out during a certain period.
You can calculate your cash flow by subtracting the money available at the end of your chosen timeframe from the money at the start. You may want to monitor your cash flow monthly or weekly to ensure you have enough funds to cover your costs and keep your business running.
On the most basic level, a budget records income and expenses. This insight is valuable because it allows you to make changes to your operations that reduce cost and risk and create the potential for improving revenue and profit, but there are certain considerations that make your budget more accurate, and therefore, more insightful and useful.
A well-maintained budget is extremely valuable to a business as it can give you visibility into the financial state of your company. The U.S. Small Business Administration recommends following a monthly schedule when updating. Maintaining your budget regularly allows you and anyone else involved in making major business decisions to understand recent financial performance and make informed decisions to capitalize on positive trends and minimize negative ones.
You can also plan for future contingencies by adjusting various line items within your budget. Perhaps you want to see what your income would look like if you had to prepare for a major project, taking both the increased income and expenses in terms of additional work hours, equipment, insurance and other potential needs into account.
Maybe you plan to hire additional staff or lease a new piece of heavy equipment and want to see what your expenses would look like going forward with no other changes. You'll only get accurate results if you maintain an updated budget, which is why it's so essential to understand how to create a budget for a business and maintain accurate numbers.
Expenses are generally smaller individually and much more numerous in total than sources of income. A careful review can lead to cost-cutting opportunities, especially when money is tight. Perhaps you can cut down on non-essential purchasing, find a new vendor for a product or service or plan to lease or finance your next piece of heavy equipment instead of purchasing it outright. Remember, it's easier to identify high costs and create a plan to address them when you have current, accurate numbers in front of you while creating a budget for a business.
Whether you have to increase purchasing of raw materials or need to add a piece of equipment to your current pool, your budget gives you a guide that tells you how much room you have to add a large lump sum or recurring monthly cost.
Some small businesses that rely on heavy equipment may find it difficult to pay the substantial amount necessary for a piece of equipment upfront. While you can consider increasing the amount of income you keep as savings for a new loader or excavator well before you need it, it can still be difficult to set enough money aside to make that purchase in a reasonable timeframe.
As your business grows, you'll have more cash moving in and out. To track that money easily, your budgeting processes should also include a cash flow component. An accurately prepared cash flow budget can help you determine if you have enough funds coming into your business to maintain effective and profitable operations over a given time frame.
A cash flow budget can also provide more insight into how to allocate the funds in your overall operating budget more effectively. For instance, if you have a surplus in one area, you could designate the extra cash for other business expenditures.
A cash flow template can provide critical insight and keep your business on the path toward growth, stability and many years of continued operations. Let's look at what goes into a cash flow template and why they're so useful.
Use a cash flow template to show how cash enters and leaves your business in a reporting period. Your cash flow template is more important than your financial statements for valuing your business. It's also essential for understanding operations. This is because a cash flow template gives insight into different cash sources and areas used in your business during a certain period. A typical cash flow template includes your financing activities, investments, and operating costs.
Follow the steps below to create a cash flow template:
There are two methods your business can choose from to calculate cash flow — the direct method or the indirect method:
Direct method: The direct method used to calculate cash flow involves adding together cash receipts and payments. This includes cash receipts from customers, cash paid in salaries and cash paid to suppliers. For small businesses that utilize the cash basis method of accounting, this method of calculating cash flow can be easier.
Indirect method: The indirect method for calculating cash flow involves adjusting your company's net income. You do this by adding or subtracting differences that result from non-cash transactions. Begin with net income from your income statement and make adjustments. These adjustments should undo the effect of accruals from that reporting period. Common adjustments include amortization and depreciation.
Planning, budgeting, cash flow management and bidding will have a direct impact on what is arguably your business's most important financial document — the balance sheet. You'll need to know how to analyze the figures and how they affect your company's ability to meet your current and future obligations.
Your balance sheet lists your assets as compared to liabilities and remaining net worth or equity. Knowing how to read a balance sheet to see what heavy equipment, cash in reserve and other assets you have available, in addition to the amount owed to creditors and the equity or book value that exists, can help guide you to making more informed and better decisions for your business. Keep these five tips in mind the next time you review your balance sheet.
Large companies have the luxury of hiring dedicated employees and several layers of review for their balance sheets, but you may have dedicated financial or accounting department, or an outside accountant create your balance sheet.
One advantage you have as a business owner in a smaller enterprise is intimate knowledge of nearly all of your company's activities. Put what you know to use by engaging in a comprehensive balance sheet analysis. Sure, calculating and recalculating the numbers to confirm accuracy is critical, but be sure to dedicate time to ensure no items are missing from your balance sheet.
While comparing assets and liabilities is the crux of a balance sheet, it's important to dive deeper into the numbers to determine what they really mean and how they impact your company's bottom line. You'll need to understand how to calculate and determine the cash conversion cycle, fixed asset ratio and return on assets ratio to conduct a meaningful analysis of a balance sheet.
Cash Conversion Cycle - As a heavy equipment dealer, you carry and sell machinery and various parts and components to your customers. The cash conversion cycle (CCC) is an accounting metric that indicates how long it takes to convert your investment in this inventory into cash. Calculating CCC is important because it indicates how efficiently your company is performing and provides a clear picture of your cash flow position. This figure should be as low as possible — a shorter cycle enables your company to grow faster. To calculate CCC, add the days of inventory outstanding (DIO) and the days of sales outstanding (DSO) and then subtract the days payable outstanding (DPO).
Fixed Asset Turnover Ratio - The fixed asset turnover ratio (FAT) is another indicator of your business's operating efficiency. This ratio compares the net sales from your income statement with the fixed assets from your balance sheet. A higher FAT means that you used your investments in fixed assets (such as your heavy equipment) effectively to produce sales and revenues. A FAT calculation involves dividing net sales (gross sales minus returns and allowances) by the average fixed assets (net assets beginning balance minus ending balance divided by 2).
Return on Assets Ratio - Knowing how to analyze a balance sheet also requires an understanding of the return on assets ratio (ROA). This figure indicates how much profit your business is earning compared to its assets while also factoring in your debt. A more robust ROA demonstrates that your company is proficient at managing its balance sheet effectively, while a low figure typically means there is room for improvement in this area. You can determine FOA by dividing your net income by your total assets.
Unfortunately, business debts aren't as simple as consumer purchasing. You can sign a contract, complete the required work, and still wait to receive payment. Some delays are inevitable, but they should never drag on for an extended period of time without communication between you and the individual or business that owes you money.
While you might not be able to collect immediately, confirm that a payment plan can be developed and executed. Whether an error led to a lack of payment or your debtor is simply dragging their feet, a balance sheet analysis helps you prioritize recovering outstanding receivables.
Working capital is a key predictor of short-term business resiliency and future financial stress. Because this figure represents what would be left over if a business used short-term resources to address short-term liabilities, it helps you identify what portion of available assets could be designated for growth. This is vital for companies that are considering acquiring more heavy equipment and similarly big investments - although there are other alternatives to outright purchasing that can also help you manage your balance sheet.
Working capital can also help you understand your options in the face of an unpredictable business downturn or other emergency that could negatively impact operations. If you don't have much in the way of working capital, you should make it a priority to increase assets and reduce liabilities to create more stable financial footing.
Your balance sheet offers a lot of important information, as long as you know how to interpret it. It's easy to read an article that tells you to take the time to review your balance sheet, but the obligations that come with owning and operating a business can get in the way. Your balance sheet is important enough that it should be regularly reviewed, whether that means blocking off your calendar or setting aside time once you come home from the office. Your balance sheet should be considered an asset in and of itself.
If your company's financial position is strong and you have a healthy balance sheet, you can still have difficulty landing more business if you don't master the bidding process. Submitting a competitive bid involves more than providing the lowest quote. You'll also need to do some research and customize the information to appeal to the prospect and make your odds more favorable.
Typically, projects require construction companies like yours to create a detailed proposal that includes specific information about your business, the scope of work proposed, limitations and exceptions to the project, the total cost estimate for the project, timelines and other salient information.
Crafting a strong bidding template can help your company secure work and please clients, which can translate into a positive reception and being awarded more jobs in the future. However, the cost information contained within the document must be accurate to avoid negative outcomes that can harm your reputation. Keep this advice in mind as you create your next bidding template.
The perception of your bid can be influenced by presentation. Your business may have an excellent reputation that proposes fast timelines and modest costs under budget, but if presented poorly, your business will have a much lower chance of being awarded the job.
Use a consistent bid form and process for the best results. You can create a basic form or download a template online — Microsoft offers a free construction bid form that’s available with its Office suite, for example. Using a consistent template that has enough space for pertinent information enables you to perfect your process and craft complete, professional bids that can help your business win jobs for years to come.
The competition can be fierce when trying to land a construction project. While consistency is important when creating a bidding template, you'll also want the bid form to stand out. Customizing the template with your company's branding allows you to make a more favorable impression and remain at the forefront during the evaluation process.
Although many construction projects can be very similar, no two are exactly alike. Whether it's a massive, new industrial construction or a small addition to a single-family home, unique factors ranging from material requirements to the soil underneath the planned foundation can lead to special considerations.
Each project is made up of a wide range of specifics that can impact deadlines, costs, labor and equipment needs, just to name a few. As a result, it is highly beneficial for you to gather as much information as possible about the project before you assemble your bid document.
This additional intelligence gained from research can help you establish more realistic expectations for the job. Plus, the person or organization running the bid process will have confidence that you have a comprehensive understanding of the task to successfully overcome any obstacles that arise during the course of the job.
When customizing your construction bid template, your research should focus on learning as much as you can about the prospective client and how it conducts its business operations. Begin by reviewing the company's website to gather any helpful details. Review the organization's mission statement and tailor your proposal to its values. Identify the challenges the organization faces and determine how you can help it overcome them.
Your research should also encompass the companies you'll be bidding against for the project. This competitive analysis can help generate creative ideas regarding how to differentiate your business from the rest and gain an advantage during the process.
Bidding on several projects at once may initially seem like a good strategy. In some cases, however, there are certain circumstances where making many bids will help your business. Typically, issuing too many bids can stretch your resources too thin and make it more difficult to complete all the contracted work on time. Bidding on complicated projects in areas where your company doesn't have the necessary experience or expertise may result in your business losing money and delivering substandard results.
Instead, you might consider focusing your efforts on finding projects that appear to be a good fit for your current structure, capabilities and resources. These projects can give your business the opportunity to invest more time into attending pre-bid meetings, researching costs, double-checking measurements and ensuring the bid is competitive, relevant and attractive to your potential client.
A great bid is extremely informative, carefully crafted for each project and offers competitive and realistic estimates for time and cost. Make sure your construction bid proposal template contains all necessary information, present your bid in a complete, professional manner, and only bid on projects that are a good fit for your current abilities. Using these tips as a guide can help you make progress and lead to positive results for your business.
Understanding the financial health of your business involves measuring various factors. Of course, financial concepts like cash flow, profit and spending are all vital to every business. You wouldn't be in business if you didn't want to make money, and a company needs sustained positive earnings to be successful in the long run. However, there's more to success than just profit, and a lack of attention to other important metrics could eventually harm your company's bottom line and negatively impact your business.
Take a balanced approach wherein finances are an important — but not the only — success pillar. The ownership and management teams can’t also prioritize customer satisfaction to earn a positive reputation. Treating employees well combined with education and training opportunities can help your company create a healthy culture and enhance retention efforts.
Let's look at how to create a balanced scorecard for your organization that goes beyond finance and explores areas ranging from worksite safety to employee engagement.
The balanced scorecard management system can help you get a complete view of the overall performance. This method is strategic, helping you plan, track and manage various aspects of your company to achieve greater success. A balanced scorecard typically covers four main aspects of a business — finances, customers, internal processes, and learning and growth. You'll use these four areas to evaluate the overall health of your business. The balanced scorecard helps you make informed decisions and set relevant, attainable goals.
Understanding each pillar of a balanced scorecard will help you learn how to make a balanced scorecard.
Don't over do it. With finances, it's most important to evaluate the responsible use of funds. Rather than determining performance based on profitability or value, you should score your financial performance on financial stewardship.
In other words, evaluate your company's ability to use resources cost-effectively. For a balanced scorecard example, your business may perform well financially if you reuse scrap materials rather than let them go to waste. Look for ways to use your resources effectively to manage finances wisely.
Your customers are a vital aspect of your business or organization. Considering how well your company serves its customers can help you make necessary changes to improve performance in this area. Find out what matters to your customers to increase customer satisfaction. For example, if your customers value quick delivery above all else, you should focus your efforts and resources on ensuring you can provide efficient delivery.
You'll also want to consider how to find new customers and build brand trust and recognition. Driving in new business and new customers will help improve overall performance.
Another important aspect of evaluating a balanced scorecard is your company's internal processes. If your business fails to operate efficiently and effectively, you'll struggle to achieve improved performance. Look for areas of your operations that may experience delays or gaps in the process. Addressing these areas helps fill in the gaps to create a more efficient and effective process. For example, if your process to schedule new projects or jobs is lengthy and time-consuming, you may miss a lot of work. Making processes more efficient will help improve overall performance.
Learning and growth are also referred to as organizational capacity. This perspective can help you evaluate factors of your business like infrastructure, training, culture and technology. Evaluate how your employees use information, technology and training resources.
Disclaimer: the information included in this article is meant to provide general information. Contact your financial and accounting professionals for more guidance. To discuss your equipment financing options, we recommend contacting your local Cat dealer. Terms and conditions apply. Not all customers will qualify.
Find in-depth articles to answer your questions about construction equipment financing, and expert tips to help you navigate today's economy as a successful business.
From tax breaks to supporting those in need, donating equipment to charity is a great option for your business. Read our tips on effective equipment donation.
Learn MoreWhat is 0% financing and is it a good deal for you, the buyer? Read our guide to equipment financing to discover how zero interest loans work, and learn other ways to save money on your next Cat® equipment purchase.
Learn MoreExplore this guide to acquiring heavy equipment to learn more about the benefits of leasing versus buying equipment, as well as the different paths toward equipment ownership, including cash purchases, financing and renting.
Learn MoreOur equipment financing requirements aren't complicated. See the four key factors we consider when you apply to take advantage of Cat equipment financing.
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