Managing your Mining and Construction equipment better maybe what is needed to win those contracts. In this blog we discuss the benefits of equipment, the ease of attaining low interest rate finance and how to calculate running costs. Managing your Mining and Construction equipment effectively is vital to running a profitable operation.
Machinery is essential for most mining & construction industries. The right equipment increases productivity and reduces labour costs. In these unprecedented times the competition to win projects is fiercer than ever. Mining and infrastructure projects want cost effective and efficient construction. New excavators, bulldozers, backhoes, tractors, bobcats, drills, and diggers are getting jobs done more efficiently than their older outdated predecessors. They save time and labour for many businesses.
Old, out-of-date machinery often incurs costly repairs, downtime, and loss of jobs to opposition who have more efficient reliable machinery. The capital outlay to upgrade or purchase a new machine can be quite large and corrode cash flow. Finance Brokers from WillFinance have said, “with low interest rate loans, which often don’t require a deposit, borrowing to buy that equipment can be a smart business decision. Interest rates are fixed for equipment loans, so the repayments are always known. This assists with budgeting and financial forecasts. The government’s recent extension to the $150K Instant Asset Write Off scheme to the end of the year is another reason business owners have no excuse to not have the BEST and most efficient machines to assist with winning projects”.
Operational costings are an important consideration when managing your mining and construction equipment. These costs are usually classified into fixed, operating, and labour costs. The calculation is not that complex. The collation of some costs however may be unknown and will need to be estimated. The following provides useful information to assist your calculations.
Once your yearly expenses are estimated, simply divide them by the number of the machinery working hours. This will give you an hourly running cost rate for the equipment.
Hourly Running Costs = Yearly Expenses/Number of Working Hours
Fixed Costs When Managing Your Mining and Construction equipment
Fixed costs will continue to occur even when the machine is not operating. Fixed costs consist of expenses like the initial price of the machinery, insurance, and cost of loan or lease if not paying cash. Sometimes there will be other miscellaneous costs like machines needing to be store so a rental cost may be needed. The equipment may need specialist tools for maintenance. These costs will of course also need to be included.
This price includes the machine cost plus sales tax, any extra attachments or modifications, and delivery. Some suppliers offer a price for pick up from their site and another price to deliver. Delivery price should include freight, packing and insurance. When buying new, the supplier should be able to give information on the estimated life of the machine. Additional attachments sometimes have a different life span than the main equipment. This may have an affect on the overall costs.
Depreciation is the decline of value of the machine and plays a huge role in the management of your mining and construction equipment. This is calculated by several factors including condition, hours of usage and market demand. The value at the end of the lifespan is a major factor. The lifespan is the length of time the machine can efficiently operate without unreasonable costs or breakdowns. Depending on the type of equipment the measure for lifespan is usually in operational hours or kilometres. Of course, the better the condition a higher value will be retained, so maintenance is paramount. Like cars, machines depreciate more rapidly in the first couple of years. There are often tax advantages associated with depreciation. A registered tax agent or CPA accountant can advise on depreciation for your specific estimation.
This is the price that may be acquired for the machine when the business anticipates selling it. Hour usage has a large bearing on this price along with the condition and market demand. With the rapid change of technology some machinery will be obsolete and of little value despite its condition and hours.
Cost of Loan or Leasing When Managing Your Mining and Construction equipment
Our present low interest rates, along with the government’s $150K Instant Asset Write Off Scheme, and tax benefits, borrowing has never been so advantageous for business. If you pay cash the economists often refer to it as a “lost opportunity cost” as the return you would get for your money combined with the cost of not having the flexibility to use that money elsewhere is a “lost opportunity cost”. Your broker can also align the repayments with your cashflow there for allowing better management of your mining and construction equipment.
Some machines like tractors will need to be protected and stored whenever possible. A rental cost may occur if some storage is needed.
Like all insurance costs they vary considerably, and it pays to shop around. The area in which you are operating, age & condition of machinery can affect the price of insurance.
Fixed Costs = Depreciation + Lending Cost + Insurance
Operating costs are more difficult to calculate as it is usually unknown the number of hours they will be used. Operating costs vary depending on the number of hours the machine is being worked. If the business has long term and reliable contracts, then the number of operation hours can be quite accurate. Operating costs include fuel or gas, tyres, maintenance, and repairs.
Maintenance & Repairs When Managing Your Mining and Construction equipment
When managing your Mining and Construction equipment, maintenance and repairs include everything from simple periodic services, to more costly overhauls of engines, brakes, and major equipment components. New equipment will usually have less repairs and maintenance than used or older machinery. New equipment also has warranties that guarantees against any major faults and expensive repairs in the first few years.
The cost of repairs and maintenance will be dependent on the age and condition of machine and how well the machine is handled by the operator. The manufacturer and the manual should be able to give a guide on these costs. Also, advice from another owner with similar equipment should have a cost record with info on working conditions.
Fuel, Lubricants & Tyres
The supplier of your equipment should be able to give you a guide on the fuel consumption rate. This cost of course depends on the actual machinery type, age, condition, hour usage or kilometres, the engine size and sometimes the load size.
Lubricants will depend on the type of equipment, but consumption will mostly depend on the machine type, the usage, and the environmental conditions. The types of lubricants can vary from engine oil, transmission oil, to hydraulic fluids to filters. Consumption can increase up to 25% or more if working in tough heavy conditions.
Again, there are many variables with tyre costs and lifespan. The amount of usage & distance, type of working surface, and the operators working ability will all affect the condition and life of tyres.
Operating Costs= Maintenance & Repairs + Fuel + Lubricants + Tyres
Labour Costs When Managing Your Mining and Construction equipment
Labour costs are wages associated with employing personnel to operate, supervise, or transport the machinery. Some machines need special training and supervision of staff to operate. Some projects need transportation to the project site. Other jobs may be a long travel from the business base and will need accommodation and/or travel costs for the machinery labourer.
The right equipment plays a major role in the success of many businesses but for most of the construction and mining industry it is essential.
Time (money) and precision is reported to be winning jobs. With cheap loans/money, tax benefits and the present $150K Instant Asset Write Off scheme there is no reason you cannot purchase the equipment to win you those jobs!