Businesses often need varied and dynamic approaches to their cash and assets to ensure ease of cash flow and business continuity.
Each business will approach the way they handle their cash differently, right the way from one person running a business, to a large corporation with hundreds if not thousands of employees. Many businesses use business leases to better their business, but what are the benefits of doing so and is it tenable long term? Knowing what’s right for you and your business is important so you need to apply the advice you read here and elsewhere to your business in a bespoke way.
Protect Cash Flow
Certain items like computers, industrial heavy machinery etc can cost a lot of money. Sometimes it’s too much. A business might need the cash to pay salaries and other suppliers amongst other things, which is why leasing items become attractive. Of course, there are different types of lease contracts you can enter into. For example, you might want to use an embedded lease which is a lease that exists within an existing contract. If you’re utilising service contracts on any level, it’s likely you’ll have an embedded lease. All lease types protect cash flow. If you have the cash available, it might be cheaper in the extreme long term to buy the asset, but leasing is the more common option even for larger businesses because it means you can use the cash to grow the business. ASC 842 sets out the standard for leases and replaces ASC 840.
Stops You Needing A Loan
If you’re leasing equipment of any kind, you might be able to negotiate a better interest rate than if you were getting a loan to buy the whole item (or multiples) from a bank or financial institution. If you can work out a good contract for machinery or other items another business might be willing to give you a decent rate of lease. Also, if you were thinking of buying the item outright, the loan amount would be pretty large and would likely hurt your business outgoings for a longtime. If your business is already heavily financed you’ll want to avoid more long term debts to a bank so leasing from another company might be far more attractive.
Better Equipment, Better Business
If you can’t afford the good, top of the line equipment when buying outright, you might be able to lease long term and get what you need. The better equipment allows you to be far more productive, provide a better level of service or design better products .Leasing lends affordability in the long term for your business. At the end of the lease term, if your business has done well, you might be able to buy the equipment, but until then a lease might allow you to deliver better business for your customers. It’s all about whether you want to make a compromise or not. If you’re in a business where all of your competitors have the best in terms of equipment, you won’t go far without doing the same. On the other hand, it might be that you’re in a business stream where there is better equipment available that your competitors haven’t made use of, opening up an angle for you to offer better for your competitors.
The key takeaway here is in ensuring that whatever you choose is right for you. It’s worth thinking about now so that you don’t come to regret your decision.