Buy shop equipment with cash or on qist?

Pay cash if the price fits inside the money you can spare without thinning your shelf. Take instalments if it does not, and only for a plan the machine itself can pay for out of what it earns. The cheaper total is not automatically the better decision for a shop that runs on its working money.

The decision that is not about the machine

A fridge, a generator, a stitching machine, a chilled display for cold drinks. Every shop eventually reaches an item that costs more than a month of profit and would clearly earn its place.

The seller offers two numbers. Sixty thousand today, or a smaller amount every month for a year that adds up to more. Almost everybody's first instinct is to compare those two totals and pick the smaller one.

That instinct is wrong, and it is wrong for a specific reason: your shop does not run on totals, it runs on the money circulating through your shelf. Sixty thousand taken out of that circulation on a Tuesday is not the same event as sixty thousand paid over a year, even though the first one is cheaper.

Get this right and the machine earns for you from the first month. Get it wrong in either direction and you either starve your stock or you carry a payment that the machine never manages to cover.

So the useful question is not which method costs less. It is what each one does to the shop while the machine is being paid for.

What each choice does to your shop

Set the two side by side on the things that actually differ.

The same machine, two ways of paying for it

Cash, all at onceMonthly instalments

What you pay in totalCash, all at onceThe lower figure, and often a further discount for paying at onceMonthly instalmentsA higher figure; the difference is the price of paying later

Your working moneyCash, all at onceDrops the day you buy, and the shelf feels it for weeksMonthly instalmentsStays where it is, doing its normal job on the shelf

What happens in a bad monthCash, all at onceNothing. You own it and nobody is waiting for a paymentMonthly instalmentsThe instalment still falls due, whatever the shop earned

Bargaining powerCash, all at onceStrong. Cash buyers get the best rate almost everywhereMonthly instalmentsWeak. The rate is set by the plan, not by you

If it turns out to be the wrong machineCash, all at onceYou lose money once and it is overMonthly instalmentsYou keep paying for it every month while it sits idle

The first row is the one everybody looks at, and it does matter. A cash purchase costs less, and sellers almost always have a better rate for somebody paying at once, because they get their money and their risk ends.

The second row is the one that decides most shops. Money on your shelf is money that turns over and earns again, and taking a large amount out of it leaves you short of stock at exactly the moment you needed to be well stocked. A shop with thin shelves earns less every day, and that loss is invisible because it never appears as an expense.

The third row is about bad months rather than good ones. A machine you own is quiet in a slow season. An instalment is not, and a plan agreed in a good month has to survive months that are not good, which is why knowing what your shop must sell to cover itself matters before you sign anything.

The last row is the one people forget entirely. If the machine is the wrong machine, cash makes it a single mistake and instalments make it a mistake you pay for every month for a year while looking at it.

The case for paying cash

Paying outright is the right answer more often than shopkeepers who are short of cash want to hear, and it is worth being clear about when.

Pay cash when the amount genuinely fits. That means it leaves without your stock thinning, without a supplier bill going late, and without you dreading the next slow week. If it fits by that test, there is no argument: the total is lower, the rate is better, and the shop stays simple.

Pay cash when the item does not obviously earn. A better shelf, a nicer counter, a paint job. These are worth doing and they are worth doing within your means, because there is no monthly earning to point at when the payment falls due.

Pay cash when the seller's plan is vague. If nobody will write down the cash price beside the plan total, the difference is being hidden rather than charged, and a purchase you cannot see the shape of is one to make with your own money or not at all.

And pay cash when you are close either way. The certainty is worth something real. A shop with no monthly obligations makes calmer decisions about everything else, from stock to credit to whether to close early on a dead afternoon.

There is one more case, and it is the one people find hardest to accept: pay cash by waiting. If the item is not urgent, the honest third option is to save for two or three months and buy it outright. That is not a failure to decide, it is a decision, and it is often the cheapest one available. What makes waiting a bad idea is only a season you would miss or a customer you are turning away today, and if neither of those is true, the wait costs you nothing except patience.

The case for instalments

Instalments have a bad name among careful shopkeepers, and mostly that is because of how they are used rather than what they are.

Take the plan when the machine earns from the first month and your working money is fully employed. A cold drinks chiller bought before summer, a second stitching machine when you are turning work away, an extra counter when the queue is losing you sales. In each case the shelf keeps its money and the machine pays for itself.

Take the plan when timing is the whole point. Equipment bought at the start of your busy season earns for a full season. The same equipment bought four months later, after you have saved up, earns for nothing, and the difference between those two is usually far larger than the difference between the cash price and the plan total.

Take the plan when the difference is small and the certainty is worth it. Some sellers price instalments barely above cash because they want the sale, and where that is true the arithmetic is easy.

And take the plan when the alternative is emptying your reserve completely. A shop with nothing set aside is one repair away from borrowing badly, and preserving that cushion is worth paying something for, in the same way that buying stock on credit is worth it when the goods sell before the bill falls due.

The number that actually decides it

Here is the calculation that answers the question, and it takes two minutes.

Say a fridge costs Rs 60,000 cash

Cash price todayRs 60,000

Instalment plan: 12 x Rs 5,800Rs 69,600

The difference, for paying over a yearRs 9,600

What the fridge is expected to earn each monthRs 7,000

Monthly earning left after the instalmentRs 1,200

The row to look at is the last one. If the machine's expected monthly earning covers the instalment with a comfortable margin, the plan is safe, because the purchase is paying for itself and your shelf is untouched.

If it covers it exactly, the plan is not safe. Every month that is quieter than expected comes straight out of the shop, and there will be several. A machine that needs a good month to pay its own instalment will be funded by your stock in every other month.

And if it does not cover the instalment at all, the answer is not a longer plan, it is a cheaper machine or a delay. Stretching the months to make an unaffordable purchase fit is how a shop ends up with equipment it resents.

Be honest and conservative about the earning figure. Count what the machine will actually add rather than the whole sale it is part of: a chiller does not earn you the price of the bottle, it earns you the difference between selling it cold and not selling it at all. That distinction is the same one that makes working out your real profit so much harder than it looks.

The traps inside an instalment offer

If you do take a plan, the difference between a good one and a bad one is entirely in what you ask before signing.

Ask these before signing any instalment plan

• What is the cash price, in writing, beside the plan total?
• How many payments, of exactly how much, on which date?
• Is anything added if a payment is late? A fair plan adds nothing.
• Who repairs it in the first year, and is that in writing?
• What happens if you want to finish early?
• Whose name is on the machine until the last payment?
• Is a guarantor being asked for, and does he know everything?

The first question is the important one and it is often resisted. A seller who will not write the cash price beside the plan total is asking you to buy without knowing what the arrangement costs, and there is never a good reason for that.

The third question protects you from the arrangement changing shape later. A fair plan is a fixed total divided into fixed payments, decided once at the start. Nothing should be added for a late payment, no charge, no penalty of any kind, and a plan that says otherwise is one to walk away from rather than negotiate about.

Ownership matters more than people expect. If the machine stays in the seller's name until the final payment, you need to know that before you sign, because it changes what happens if something goes wrong in month eight.

And if a guarantor is being asked for, make sure he knows the full amount, the number of months and what he is agreeing to. A guarantor who was told it was a small thing is a relationship you are about to lose.

Keep your own copy of everything, including the payment schedule with the dates on it, and mark each payment off as you make it. Sellers are usually honest and record-keeping is usually poor, and the arguments that happen in month ten are almost always about a payment that was made and never recorded rather than about a payment that was missed. A signed schedule with ticks on it settles that in five seconds, and it costs you nothing to keep.

A short way to reach the answer

Put the two sides together and the decision usually makes itself.

A short way to reach the answer

1. 1Write what the machine will earn or save each monthBe conservative and be specific. Cold drinks sold in summer, hours of load shedding covered, pieces stitched. A number you can defend to yourself.
2. 2Count your working money without touching the shelfWhat can leave the shop today without your stock thinning or a supplier bill going unpaid? That figure, not your total savings, is what you can spend.
3. 3If the cash price fits inside that, pay cashPaying at once is cheaper, gives you a better rate, and leaves nobody waiting for money from you every month.
4. 4If it does not, take the plan the machine can pay forChoose the instalment your monthly earning covers with room left over, even if that means more months. A plan the machine cannot carry is a plan your shelf carries.

Notice that the first two steps are about your shop and not about the offer. Most bad equipment purchases are made by comparing two sellers rather than by looking at the shop that has to carry the payment.

The second step is the one to be strict about. Working money is not the same as savings. It is what can leave today without your shelves thinning, your supplier being paid late, or your emergency money disappearing, and it is almost always a smaller number than people expect.

If you get to the fourth step, choose the instalment size before you choose the machine. Knowing that your shop can comfortably carry four thousand a month tells you what you are shopping for and stops a seller from moving you up to a model you cannot support.

And whichever way you go, write the decision down with your reasons. A year later, when the machine is either the best thing in your shop or an ornament, that note is what teaches you how to make the next one, in the same way it does for growing the shop you have.

Common questions

The seller offers a discount for cash but I would have to empty my reserve. What do I do?

Keep the reserve and take the plan, unless the discount is large enough to rebuild the reserve within a month or two. Emergency money exists precisely for the week when a supplier wants paying early or something breaks, and a shop without it ends up borrowing on far worse terms than any equipment plan. The discount is a known amount; being caught short is an unknown one.

Can I pay part cash and part instalments?

Very often yes, and it is usually the best answer available. A larger amount at the start reduces the total you pay and lowers every monthly payment, which makes the plan easier for the machine to carry. Pay as much as fits comfortably, keep your reserve intact, and spread only what is left.

What if I want to finish the plan early?

Ask before signing, because the answer varies and it is nearly impossible to negotiate afterwards. A good arrangement lets you settle the outstanding balance whenever you like, with the total reduced for the months you no longer need. Get the answer in writing beside the payment schedule so that a good season can be used to clear the machine instead of being spent.

The machine is for my home but I would use it in the shop too. Which money pays for it?

Split it honestly and write down the split before you buy, because this is one of the fastest ways for shop money and house money to get tangled. If it mostly serves the shop, the shop buys it and the house pays nothing; if it mostly serves the house, buy it with your own money. What causes trouble is an item paid for by the shop that lives at home, because the shop never gets the value back and the accounts stop meaning anything.

Is second-hand equipment a way around the whole question?

Sometimes, and it is worth looking at seriously for simple machines where repairs are cheap and parts are easy to find. The risk is that a second-hand item bought with cash you could not really spare becomes a repair bill within months, which is the worst of both choices. If you buy used, buy from somebody who will still be there in six months, and keep enough back to fix it once.

How do I know if the machine really earned what I expected?

Write the expected monthly figure down on the day you buy it, then check it against reality after three months and again after a year. Most shopkeepers never do this, which is why the same optimistic guess gets made about the next purchase too. A single honest comparison, kept somewhere you will see it, makes every equipment decision after it much better.