How Equipment Leasing Can Transform Your Business Operations

In business, tough financial decisions must be made.

The most common one: buying or leasing equipment.

And one of the first…

Most business owners make the wrong one. They think purchasing equipment outright is the best choice. The truth?

Equipment leasing is used by 82% of businesses to acquire equipment and software.

And it's for a reason. Leasing provides solutions to problems that purchasing does not.

In this article, we are going to look at how business financing through leasing provides solutions for these problems:

• Preserving Cash Flow
• Competitive Technology Advantage
• Financially Beneficial Tax Breaks
• Maintain Liquidity
• Equipment Leasing is Used By Most Businesses

With all these advantages, it's no wonder that equipment leasing has changed the way business is done.

Preserving Cash Flow

Cash flow.

Talk to any business owner and you'll hear them mention this. They need more cash flow.

Buying equipment reduces cash reserves. Business financing solutions preserve cash flow and help manage liquidity. As do these tips on how to manage debt in business.

Equipment leasing does this.

Buying equipment outright with cash leaves less in the bank for other expenses. When investing in equipment, instead of having to spend tens or hundreds of thousands of dollars on an equipment purchase, costs are spread over a period of months or years.

Businesses keep more cash on hand for:

• Salaries
• Employee wages
• Unexpected expenses
• Product development

That's why equipment leasing makes financial sense. A business has less cash tied up in equipment and can use that money for other business opportunities and unexpected expenses.

Here's how cash flow issues dictate the smart choice.

Think about a company that needs a $100,000 piece of equipment. If purchased outright, that's $100,000 in cash gone from the business. But by leasing equipment, it can pay monthly for the same machinery and not touch the capital reserves.

If the business wants to grow or pursue new opportunities, cash flow is key. Leasing leaves money on hand. Purchasing does not.

If cash flow is a priority in business, leasing is the way to go.

Competitive Technology Advantage

Technology is constantly advancing.

Computer systems, manufacturing machinery, and even office equipment all become outdated quickly.

New innovations are released each year that provide advantages in productivity and efficiency.

Companies that purchase equipment become trapped with out-of-date machines.

But companies that lease equipment have flexibility to upgrade with technology as it comes available.

Most equipment leases are structured with end-of-term options that allow businesses to return old equipment at the end of a lease term. This gives the companies a chance to return the old equipment and lease new technology that includes the latest upgrades and capabilities.

This applies to construction equipment as much as office computers. Construction equipment these days come with automation and GPS technology for efficient fuel use. Equipment purchased even five years ago is out of date. It's also expensive to purchase when new equipment is released.

Construction equipment leasing companies can always offer the newest technology because they lease it. Construction companies that purchase equipment quickly find themselves behind the competition as they struggle with older technology.

This is also true with server equipment for businesses that need IT hardware. Server equipment becomes outdated quickly. Servers purchased at full price five years ago are scrap and need replacement.

Purchasing them regularly is expensive. Leasing equipment provides access to new technology regularly without huge capital expenditures for equipment purchases.

Businesses that don't lease new equipment quickly become behind the curve with technology and that matters in any industry.

Financially Beneficial Tax Breaks

Businesses benefit from a wide range of tax breaks. Equipment leasing in particular is advantageous because of the tax savings.

When equipment is leased, the payments are a deductible business expense.

In many cases, businesses can deduct the full lease payment as an expense each month. That is not an accounting change to be phased in over several years.

With purchased equipment, deductions are limited to depreciation over time.

Businesses can use Section 179 to write-off purchased equipment in the year of the purchase, but there are limits on the deduction. Also, a business that purchases equipment must make sure that it qualifies for Section 179. Not all business types qualify for this tax break.

Section 179 Deductions also have limits on the amount of equipment purchases that can be deducted each year. These limits change each year but they do not always make deducting full equipment purchases financially beneficial.

Equipment leasing sidesteps this completely. The payments are deducted as a business expense. Every month.

That is why a tax preparation service like IRS Leasing gives tax advantages that most businesses don't know exist.

The business equipment leasing industry has worked hard over the years to lobby for these tax benefits. It is no accident they exist.

The tax benefits of leasing are a primary reason most businesses choose to lease instead of purchase equipment.

Maintain Liquidity

Business owners and CEOs love liquidity.

Liquidity refers to having access to cash in a time of need.

Equipment purchases destroy liquidity. They tie up cash that could be used for operating expenses into equipment. Liquidity is lessened.

Businesses face unexpected challenges all the time. A good business will maintain an emergency fund of cash to meet those challenges. The less cash on hand that can be used for unexpected opportunities and expenses, the more difficult it is to respond to those opportunities and challenges.

Equipment leasing has a significant advantage over equipment purchases because it preserves liquidity.

Monthly lease payments on equipment are lower than purchasing the same equipment. This means cash is always on hand to meet financial needs.

Equipment leasing also leaves more cash on hand because there is no need to save up for a large equipment purchase. Equipment leasing companies finance equipment, allowing businesses to finance instead of purchase equipment.

Businesses never have to worry about equipment purchases when they lease. Leases can be signed and funding is guaranteed and quickly released.

Business liquidity is better maintained by leasing than purchasing equipment.

Equipment Leasing is Used By Most Businesses

Businesses do not buy equipment outright in most cases.

Leasing is common. 82% of businesses use financing solutions to obtain equipment. Business financing with leasing is how more than half of equipment acquisitions are forecast to be financed.

Business financing solutions provide more than access to equipment. They also offer the following benefits:

• Preserves cash flow, allowing better liquidity
• Tax benefits are used that make leasing financially smart
• Allows for staying current with technology
• Leasing keeps businesses from being saddled with older equipment technology that leaves them behind the competition.

The types of equipment include:

• Office Equipment
• Computer Systems
• Printers and Fax Machines
• Accounting Equipment and Software
• Machinery

Equipment leasing has changed the way business is done.

Business owners know the advantages of leasing equipment instead of buying. Not only is it used by 82% of all businesses, it's the financially smart way to obtain the equipment your business needs to operate.