One of the biggest financial decisions for any business is investment in capital equipment. The successful appraisal of a planned investment project can literally make the difference between a company surviving or not. Asset management needs to be considered from design to final disposal.
Capital investment is, inevitably, a complicated process and one that is risky, but the potential is there to add value, increase profits, improve the working environment and so on. These are the motivations for investment.
Accountants’ yardstick
Speak to an accountant and, as a yardstick, he’ll ask you what return you expect on the asset. The minimum answer he’ll expect to hear is 8%, and many businesses do much better. If your calculations indicate less than 8%, most accountants would take a deep breath.
According to the TUC, over the last five years the average return on capital in the UK was 12.5% compared with 8.3% in the US and 8% in the Eurozone.
Laundry and drycleaning capital equipment are designed for significant life spans. Ongoing costs are, therefore, a significant factor in capital investment decisions.
An understanding of the lifecycle costs for all new projects is an essential requirement, and will help to maximise the return on investment.
In addition, assessments of all changes and extensions to production facilities in terms of cost (that is, capital and operating expenditure) compared with the likely benefits to be gained (such as reduced risk and greater revenue streams) is an important processes.
Premium rate
According to the CBI, average insurance premiums have increased by around 50% in the last year. Despite this, the insurance industry says it is struggling to meet its liabilities.
One of the chief problems is an increasingly litigious society. Claims for work-related accidents are pushing up the cost of business insurance to “unsustainable levels”, according to Digby Jones, CBI director general.
Added to this is the dire state of the stock market. Simply, the insurance companies are not making as much money from investments as they were.
All the more reason, then, to shop around and seriously assess the smallprint of policies aimed specifically at the laundry and drycleaning industries.
In general terms, business policies should cover all the major risks, like fire, flooding and theft. But check out the details for the terms under which a policy will pay out.
Some insurance policies require evidence of forcible entry or exit from the premises before admitting a liability for theft. This may not be the most suitable terms for your business.
Similarly, make sure you have cover for garments and linen that are damaged during the cleaning process. It is unlikely that a general commercial insurance policy will specifically cover this.
Lastly, if the worst happens and fire razes your premises, have a plan in advance for dealing with the problem. Don’t rely on the insurance policy to keep your business afloat.
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