Equipment Leasing
The primary advantage of leasing business equipment is that it allows your customers to acquire equipment with a minimal initial expense. Equipment leases through ExecuTech require no down payment, so your customers can obtain the goods you specialize in without significantly affecting their cash flow. Other reasons consist of tax deductions; cash flow management, immediate write offs, and better balance sheet management.
Leasing VS Cash
In the equipment sales industry the question of purchasing equipment outright or leasing equipment comes up often. Depending on the leasing or purchase program that your company offers, either could be of great benefit to the customer. However, as a leasing company, we would like to share a few key points when looking to make this decision.
| Lease: Leasing has only a slight impact on cash flow due to small monthly payments being made over time. | Cash: Buying equipment has an immediate impact on cash flow due to making one large payment up front. |
| Lease: Depending on the lease program, the burden of maintenance, interest, taxes and insurance is managed by the lessor | Cash: The owner of equipment is responsible for all maintenance costs, taxes, insurance, and interest. |
| Lease: Leasing equipment requires the user to be responsible for the equipment for the term of the lease agreement. | Cash: The buyer is responsible for the entire life of the equipment. |
| Lease: Depending on the lease program, some lessors offer upgrades of equipment throughout the lease program. At the end of the lease the lessee is able to upgrade equipment easily. | Cash: Owners are responsible for the disposal or selling of outdated equipment. Depending on the choice, the upgrade process can be affected. |
| Lease: The lessee transfers all risk of obsolescence to the lessor since there is no obligation to own equipment at end of the lease. | Cash: The owner of the equipment bears all the risk of equipment devaluation. Obsolescence is the responsibility of the owner. |
| Lease: Leased equipment is expensed when the lease is an operating lease. Equipment in this case does not appear on the balance sheet. This can help your company’s financial ratios. | Cash: Financial accounting requires owners to have equipment appearing as assets with a corresponding liability on the balance sheet. In turn affecting the company’s financial ratios. |
| Lease: Depending on the lease program, some lessors offer equipment management services as part of the lease. This leaves the responsibility for tracking the equipment to the lease company. | Cash: For the life of the equipment, owners are responsible for tracking the equipment. |
To give an example of how leasing can help businesses with their cash flow as well as the added benefit of tax deductions, see the Analysis below.
1 ) Equipment Cost: $2,400.00
2 ) Monthly Lease Payment Equipment Cost: $50.00 X 48mo
3 ) Annual Gross Cost ($357.00 x 12mo): $600.00
4 ) Tax Deduction (Estimated 40% of Annual Gross Cost): $240.00
5 ) Net Annual Cost (Annual Gross Cost minus Tax Deductable Amount): $360.00
6 ) Net Cost per Month (Net Annual divided by 12): $30.00
7 ) Net Cost Per Day (Net Cost Per Month divided by 22*): $1.36
8 ) Net Cost Per Hour (Net Cost Per Day divided by 8**): $0.17
*22 is average business days in a month (you can adjust for your schedule)
**8 hours, based on the average business schedule
So, Why Lease:Flexible terms: Leases are usually easier to obtain and have more flexible terms than loans for buying equipment or outright purchases. This can be a significant advantage if you have bad credit or need to negotiate a longer payment plan to lower your costs.
Leasing keeps your equipment up-to-date: Computers and other tech equipment eventually become obsolete. With a lease, you pass the financial burden of obsolescence to the equipment leasing company. For example, let’s say you have a two-year lease on a credit card machine. After that lease expires, you’re free to lease whatever equipment is newer, faster and cheaper. (This is also a reason some people prefer to lease their cars.) In fact, 65 percent of respondents to a 2005 Equipment Leasing Association survey said the ability to have the latest equipment was leasing’s number-one perceived benefit.
You’ll have predictable monthly expenses: With a lease, you have a pre-determined monthly line item, which can help you budget more effectively. Thirty-five percent of respondents to the Equipment Leasing Association’s survey said this was leasing’s second-highest benefit.
You pay nothing up front: Many small businesses struggle with cash flow and must keep their coffers as full as possible. Because leases with ExecuTech do not require a down payment, you can acquire new equipment without tapping much-needed funds.
You’re able to more easily keep up with your competitors: Leasing can enable your small business to acquire sophisticated technology, such as a Point of Sale (POS) system for your business. You can tie your existing lease into a new one at any time. The result: You’re better able to keep up with your larger competitors without draining your financial resources.
