Popular earthmoving machines and their real depreciation rates – don’t tell your accountant…
Depreciation is a super boring topic – but before I lose you (and your eyes glaze over like you having a conversation with your tedious Aunt Maud about the yoga class at her retirement village) – your used equipment may not be losing as much value as you think each year – which is good for those of us in plant hire trying to extract as much juice from our assets as possible.
Depending on what you have in your fleet – and what creative accounting you apply to dress up your P&L and Balance Sheet – you may not want to share the below with your beady-eyed bean counter anytime soon. It’s just handy to know that your assets aren’t shedding value as fast as you may assume they are.
Unlike buying yourself that KTM 250 Dirtbike you’ve always wanted with your BAS money, which promptly loses 50% of its value the moment you scream out of the lot with it jockey-strapped to your mate’s trailer (a decision that could easily be considered a poor, short-sighted financial decision nevertheless infused with great personal enjoyment) - believe it or not, investment in most earthmoving machinery, despite what you have heard, doesn’t depreciate as much or as fast as you think.
I know this because I was reading this very interesting white paper authored by Carsales.com Ltd – the owners of Construction Sales - which was research commissioned by my mates over at GoGetta - these guys have this cool equipment funding product that's like renting, but better.
Anyway, this paper compared listing prices of different kinds of used machinery up for sale over the years. What they found was, on average – listed construction equipment only loses about 5.5% of its value year-on-year, resulting in a reduction of overall price/asset value of 24.7% over 5 years.
Also - different machines depreciate at different rates. This is largely due to the speed at which these machines are innovated and new models are released, as well as the wear and tear of the machine during its operation – the harder the grunt work, the faster it depreciates. Obviously.
Machines that hold their value the best (in order of least depreciation over time):
- Rollers and Compacting Machines – 3.5%
- Concrete Equipment – 3.7%
- Skiddies – 4.5%
- Forklifts – 4.5%
- Dozers – 4.6%
- Excavators – 4.7%
Machines with average depreciation:
- Graders – 5.2%
- Trailers – 5.3%
- Hay and Silage – 5.4%
- Cranes and Lifting – 5.8%
- Backhoe Loader – 5.8%
- Forestry Machines – 6.0%
- Scrapers – 6.1%
Machines with higher than average depreciation:
- Tractors – 6.4%
- Boring and Drilling – 6.5%
- Wheel Loaders – 6.6%
- Crushing and Screening – 7.4%
It can sometimes work in your favour on your P&L to expense depreciation at the highest possible rate so the taxman keeps his greasy little hands off your green. So use the above information wisely, of course.
Also – if you are trying to make your balance sheet look a little better – you might want to think about rent-to-own options like GoGetta. Their nifty rent-to-own product is 100% tax deductible, which sits off your balance sheet (as an operating expense) without a new asset being considered. If you need to scale up quickly, grab a new or used machine to complete a contract and don’t want the hassle, issue or risk of bank debt, or the noose of a chattel mortgage – you should definitely check GoGetta out.
If you don’t know what a P&L or Balance Sheet is, well, this one is a question for the beady-eyed bean counter I mentioned earlier. And if you really are thinking about buying a KCM, instead of paying your BAS, I would strongly recommend not doing that.
Good luck and happy machine purchasing!
To register your plant hire company with iseekplant.com.au, click here.
To source machines for your next project, click here.