IT NOW MAKES MORE SENSE THAN EVER
Leasing Smart! H
BY JOEL RONAN
IGHER MARGINS. BY OFFER- ing a monthly lease payment, most distributors see an increase in their profit margins.Why? Because many times the financial terms are more
important than the price paid. For example, the differ- ence between a payment of $6,132.05 and $6,111.01 is only $21.04 per month. Few customers would object to that difference. Yet it means another $1,000 to the selling price of the parking systems.
Close more sales. By obtaining credit information
upfront and getting the lease approved, youmaintain control of the selling process.Why send your customer out shopping for financing after you have the order for the system?Alot can happen during that time, including that your customer decides to go with someone who offers leasing.
Customer Advantages Conservation of credit. Leasing provides an alternative line
of credit to businesses.A lease is not a loan, and in many cases has no impact on the borrowing power that the businessperson has at the bank. These days, businesses are keeping their bank lines and cash intact and leasing their equipment. Leasing, there- fore, becomes a new source of credit. 100%financing. This conserves capital, which is the life
blood of a business. Keep in mind that in most cases all that is required is one payment upfront. That means that on a $300,000 project, the customer puts down approximately $6,200 to start the process. Banks typically require 20% to 25% down.Why is this so significant? Today, there is an urgent need for businesses to retain their
cash. Banks are not lending in any significant amounts, so sur- vival requires businesspeople to manage their cash flow rigor-
ously.Added to that is the fact that most businesses have seen their receivables harder to collect, further putting demands on their cash. Consider also that cash can be used for other purposes such
as inventory, expanding sales, etc. The average annual return on capital in businesses is 25%before taxes. Cash truly is king. Off balance sheet financing. If the lease is structured as an
operating lease, the payments are simply written off each month as a operating expense. The asset does not appear on the balance sheet as the ownership of the parking system remains with the leasing company. This improves your debt-to-equity ratios and allows the customer to be in a better position for other financing. Upgrades and add-ons are a breeze. Once the leasing
company has your customer’s credit information, it is easy to add on equipment and simply increase the
payment.Also, you can upgrade the equipment before the end of the term by getting a payoff amount and wrapping that into the amount of the new parking system, less any trade-in allowance youmay give.
Tax benefits. This is an individual issue and cannot be
emphatically stated without consulting with the customer’s accountant or tax attorney. But many companies save taxes through leasing by writing an operating lease on a short term. The payments are higher than the allowable amount they could take in depreciation if they were financing or paying cash. This allows themto accelerate the write-off period over a shorter peri- od of time and thus lower their taxable income. Maintenance agreements. Many leasing companies
allow you to bundle the equipment with maintenance agree- ments. This gives your customer one payment for everything. It also ensures both parties what the maintenance costs will be over the next several years. Hedges against inflation. Not many people are thinking
about inflation these days, but most economists will tell you that an inflationary period is almost certain to followthese hard times. With leasing, your payment is locked in for the initial lease term. Leasing is here to stay, and it’s a dynamic way to grow a
business in these tight and changing economic times. In order to determine if there are tax or accounting advantages, the customer should always consult their tax adviser as benefits, or lack there- of, depend onmany factors.
Joel Ronan is the owner of Atlantic Business Credit. He can be reached at
joelronan@aol.com
PT DECEMBER 2009 • PARKING TODAY •
www.parkingtoday.com 25
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