As a business owner, you owe it to your stakeholders to find the right tools for each part of your business. Equipment leasing
is a valuable financial tool, which let’s you employ expensive and specialized equipment, without having to be tied to it, when the needs of your business change.
Leasing agreements have been used for many decades to finance expensive equipment. With the state of the economy being as volatile as it has been in the last few years, you have to think very carefully about what you invest in capital assets. The short-term cost of a lease is much less than outright purchase and more flexible than debt financing. If you don’t already use it in your business operations, there are some features of equipment leasing that are worth looking at.Uncertainty Flexibility and Options
Leasing of expensive equipment, instead of purchasing it, enables you to alter capacity levels rapidly and at low cost. Securing a short-term equipment lease to grow your business is an excellent way to facilitate expanded capacity. It gives you the resources you need but at a fraction of the cost on your cash flow required to purchase them. This is the same sort of leverage that you will get from paying for the equipment in installments but without carrying the debt on your balance sheet.
When you lease your equipment
you don’t hold the title to it. That might be a good thing because you only have to keep the equipment as long as you need it. These days, your business has to be as agile as possible. You’ve got to respond aggressively to both positive and negative changes in demand and competition, in any state of the economy.
A really helpful feature of leases is that you might also have maintenance service included in an equipment lease. This will help to dramatically reduce the associated overhead costs of repairs and maintenance, which further reduces your cost of operation. This is especially helpful for small companies that would be disproportionately impacted by the extra labor costs of taking care of equipment internally.
It’s an aspect of uncertainty in the business climate that occasionally unforeseen opportunities can take an enterprise in a new direction, assuming that you’re prepared to make the required investments and commitments. Leases give you the option to respond to opportunities as they arise, in a very short time frame. This kind of flexibility enables you to change the course of your company more rapidly, in response to the adaptive challenges of the modern business cycle.Leasing For Startups
At the start of a new venture you have to decide on the methods used to acquire the resources and equipment to commence production. There always needs to be a balance of the short-term and long-term risks and rewards that you’ll be facing. Even if the capital to invest is available as cash sitting in a bank account, it may be a far more prudent choice to gain possession of equipment through some sort of financing arrangement.
Choosing how to allocate capital, and what sources of investment to draw on, are some of the most important initial decisions that a new business can make. Equipment can be purchased with loans in return for either interest payments or an equity stake in the business. This will give you title to the tools needed, as well as access. But what if your needs change?
Business conditions change unexpectedly; either by changes in market conditions or through innovations that make equipment that you own obsolete. What then? Very often there is little resale value for what may be highly specialized industrial equipment.
Leasing equipment can be a very cost-effective alternative to borrowing or diluting shares with new partners. It enables companies to gain the operational capacity without high capital expenditure. Not just the initial capital outlays but also the possibility of lower overheads when maintenance services are provided as part of the deal. In the uncertainties of a volatile market, you can use a short-term lease to try new equipment without being tied to it, to make sure you have the right equipment for the task.
For businesses that work on projects with short time horizons, such as construction or ship building, it can be very helpful to supplement owned equipment by leasing the right tools for specific project tasks. There’s no need to purchase specialized equipment that would likely be grossly underutilized once the current project is completed. Alternatively, when innovation outpaces your project, leasing can allow for upgrades, as better equipment becomes available. When Leasing Is The Question Options Are The Answer
There are some circumstances where leasing may not be the right financial solution. Leasing may be more expensive that outright ownership over extended periods of time. Once a lease period has ended there isn’t any residual value in the asset in the way that outright purchase would make the equipment your property. However this can be addressed by the inclusion of an option to own as part of the lease terms.
If there’s a possibility that owning your equipment might be more useful to you in the future, an option that, at a future time of your choosing, allows you to end the lease and take ownership of the equipment, may be something beneficial to negotiate into the terms of the lease. This sort of lease option gives you a lot of flexibility in controlling how much of the cost is taken on, in response to changes in the business climate.
Leasing with an option to purchase is a really useful tool when you’re starting a new business. That’s the time when you most urgently need to minimize costs, risks and obligations. A new business is vulnerable to anything that ties up capital or drains revenues. Once the business builds up a steady cash flow you can decide whether or not you’re better served by taking on debt to purchase your equipment.
It’s always a good idea to have the terms of your lease reviewed by an attorney. They will advise you against potential mistakes or restrictive clauses hidden in the depths of the lease contract. The expense of a legal counselor’s time and effort is cheap insurance against the financial burden of unsuitable terms or the cost of a lawsuit later on.
Leases are great financial tools to leverage capital assets, while still accounting for uncertainty in the market. When your business has established good revenue and profit levels that’s the time to consider exercising options to buy. The flexibility of equipment leases helps you handle the adaptive challenges of the unpredictable and competitive business environment.