Cash Flow vs Growth: When to Finance an Asset and When to Fund a Campaign

Every growing business reaches a point where there is more than one good place to spend its money. For instance, you might need a new vehicle or upgrade a piece of equipment. At the same time, a marketing campaign could bring in the next wave of customers.

So, which one comes first?

The answer, more often than not, usually comes down to what the business needs right now. If you are turning away work because you lack the right equipment, then an asset may need to take priority. However, if you have spare capacity but not enough customers, then marketing could be the smarter use of your budget.

Let’s explore when to finance an asset and when to fund a campaign.

When Does Financing a Business Asset Make Sense?

Financing an asset can make sense when your business needs it now. That said, it could carry a risk because paying the full price may leave you with too little money in the bank.

A work vehicle is a good example because having a reliable ute or van at your disposal might allow you to visit more customers, carry equipment or make deliveries. Financing allows you to spread the cost over regular repayments, so you can start using the vehicle without spending a large portion of your cash in one go.

Some lenders even offer car loan options for poor credit score applicants, which can be particularly useful for business owners with past credit problems.

If you are considering finance, make sure you weigh up the interest rate, fees, repayment amount and total cost over the full loan term.

Will the asset earn money or cut costs?

Before signing a finance agreement, it is important to ask yourself what the asset will actually do for the business.

Will a new van, for instance, help you complete more jobs each week? Could upgraded machinery increase your production levels? Would replacing an unreliable vehicle reduce repair bills and missed appointments?

As much as you can, try to estimate the value of these benefits each month. Then compare that amount with all related expenses. This should include repayments, insurance, registration, servicing, and fuel. Ultimately, the asset should bring in or save enough money to justify its cost.

How long will you use the asset?

Where possible, try to match the loan term to the asset’s useful life. You won’t want to keep making repayments after the equipment has become outdated or too expensive to repair.

For example, a well-chosen commercial vehicle may remain useful for years. However, certain technologies can date quickly. It is worth spending a little time considering how long the asset should last, whether it will still meet your needs as the business grows and how much it may be worth when you replace it.

Can you afford the repayments during a quiet month?

One thing you should not do is base your calculations on your busiest month of the year. Instead, you need to factor in quieter periods as well.

This is because your repayments will remain due even if sales slow down, an important customer pays late or an unexpected bill lands. It is advisable to review your cash flow history to see how the proposed repayment would fit into a difficult or quieter month.

Should You Pay Cash for an Asset Instead?

The thought of buying an asset with cash can be appealing because the asset belongs to the business from the beginning. This means you won’t have to contend with loan repayments, interest charges or finance application fees.

This may suit an established business with reliable revenue and ample cash reserves. It can also be a good option for a lower-cost purchase where borrowing fees would add too much to the price.

However, owning an asset outright will not feel like a win if the business cannot cover wages or gets hit with an unexpected tax bill a few weeks later. Ideally, you’ll want to have sufficient funds to draw on to remain operational.

When Is It Worth Funding a Marketing Campaign?

If you already have the people, equipment, and time to handle more work, but customer demand is too low, you may deem marketing a higher priority.

However, while a campaign might involve search ads, social media marketing, email, content, events or local promotions, it is essential to recognise that, unlike a van or machine, these activities do not have a store of value you can recoup by selling later. In fact, its value depends largely on the enquiries, sales, and returning customers it generates.

Has a similar campaign worked before?

Past results can tell you a lot about potential future success. Not least because if a previous campaign consistently brought in profitable customers, then investing more money in it may be a reasonable next step.

It is much harder to predict the results of a completely new campaign, which is why it is worth running a smaller trial first to test the audience, message and offer without placing too much cash at risk. If the results are encouraging, then you can always gradually increase the budget.

Can you connect the campaign to actual sales?

While clicks and social media reactions may look impressive, they do not always result in revenue. This is exactly why it is very important to choose measurements that align with the campaign’s goal.

These could include phone calls, quote requests, bookings, purchases or qualified leads. By tracking these actions, you will find out the cost of acquiring each new customer. Once you know this, you can then compare that cost with the profit a customer is likely to generate.

How soon could the campaign produce revenue?

Something else you should consider is your ROI and speed of return. Different marketing activities produce results at different speeds. So, if revenue is urgently needed, it is wise to invest heavily in a campaign with a long payback period to generate the profit and cash flow you need.