“Cash is king. Without it, you don't pay bills. You don't acquire new companies. You can't do that with net earnings.” ~ Richard Loth
When reviewing purchases the lease is an option to consider managing cash flow and continuing moving the business forward. Advantages of leases include:
- Low to no down payment - cash flow plus
- Requires no restrictions on a companies financial operations - loans come with covenants
- Lower payments over a period of time
- Protection against the risk of equipment obsolescence
When entering into a lease the provisions need to be reviewed.
- The specific nature of the financing agreement
- Payment amount
- Term of agreement
- Disposition of asset at the end of the term
- Schedule of value of the equipment for insurance and settlement purposes in case of damage or destruction.
- Responsibility for maintenance and taxes
- Renewal Options
- Cancellation penalties
- Special provisions
Cash is King - Margin is Sanity - Revenue is Vanity
While multiple factors go into an analysis the lease option does offer the continued moving forward of needed assets while keeping cash flow, banking covenants and other metrics in line.