Should the company pay for the equipment or lease it? Below are some sales arguments that explain why leasing is extremely advantageous for most enterprises. Also keep in mind that leasing is the alternative to purchasing – rather than to owning as many people believe. Owning is merely the result of purchasing.
The company pays less tax
The first advantage of leasing is that the company pays less tax. For each penny the company pays in interest, the state covers the same percentage of the interest rate. If the company conducts a profitability analysis, the result will indicate that tax is part of the equation.
The company can upgrade to better equipment
The right equipment is important as it gives an immense competitive advantage. The best equipment works both more rationally and more efficiently – while saving the company time, money and worry. The right equipment can also be vital for raising employee satisfaction. Many companys will also be willing to pay more for what they view as a better overall product.
Leasing allows the company to regularly upgrade to better equipment without a corresponding increase in the monthly payment. Purchasing puts the company in a much more restricted situation as it forces the company to dispose of equipment once new equipment is acquired. Companies that buy their own equipment will therefore often wait long before upgrading. This generates losses for them in the form of inefficiencies and higher operating costs.
The company maintains good liquidity
Liquidity is the cornerstone of most companies. Without access to money, everything grinds to a halt and, in the worst-case scenario, can cause the entire company to collapse. Good projects, ideas or investments will then fall through, as well. Good liquidity is decisive if the business is to grow and develop – in particular, if it is growing fast.
The company avoids fire-fighting
Everything grinds to a halt without liquidity. You cannot pay your subcontractors or wages to your employees. As a result, you start spending a lot of your time on «fire-fighting» measures, which eventually comes at the expense of your core activities. This can be avoided if the company chooses to lease the equipment rather than spend accumulated savings, which makes it easier to focus on the important aspects of the day-to-day operations.
The company can launch sales promotion measures
By freeing up capital – and not tying it up in equipment – the company will have spare funds to invest in profit-increasing measures. For example, the company can hire more people or run marketing campaigns. Money can then be used in much smarter ways and eventually provide better returns.
Other advantages leasing has for the company
No payment of VAT in advance
Better financial ratios in the balance sheet
Does not tie up the company’s collateral security
Easier access to external sources of financing when the times are tough
The company goes into a positive spiral
What is the effect when you combine lower taxes, better equipment, higher liquidity and sales promotion measures? There is only one answer to that – better results for the customer. The customer goes into a positive spiral that is all due to the choice of leasing rather than purchasing.