Cash Flow drives the decision!

Improving cash flow continues to be the main reason small to medium size firms choose to lease equipment, according to a new Equipment Leasing and Finance Foundation study on the leasing decisions of these companies.

This study, called Leasing Decisions of Small Firms, identifies the reasons firms choose to lease and the reasons they choose to purchase. Also, it describes who, in the small to medium size business community, chooses to lease and who chooses not to do so.

Using survey data collected by the Gallup Organization on behalf of the National Federation of Independent Business, the study offers a profile of small to medium size firms most likely to lease equipment and also identifies challenges facing vendors and the leasing industry in this particular business sector.

The study indicates that there is a huge opportunity for lease financing in this business sector. One of the most striking outcomes of the study was that the more detailed the analysis used by a business owner, the more likely he will choose to lease or finance his equipment. While the highly educated owners don't lease 100% of the time, they do understand cash flow and tax benefits.

The leasing study additionally found that firms who calculate the tax implications of their investments are also more likely to lease finance their equipment. These firms tend to have a preference for leasing or purchasing depending on the kind of investment they are about to make.

Some firms justify purchasing outright, due to the feeling that it costs less. So, there is a perception that leasing is more expensive. RSR can explain and overcome this misconception to and show that the benefits truly outweigh the perceived costs. Educating our customers about the benefits of lease financing, especially pointing out the cash flow and tax benefits to be gained, is how RSR can separate the facts from the conjecture.

The aforementioned study also noted that the small to medium size firms most likely to lease are privately held rather than publicly traded. These are growing firms, but their limited working capital challenges their ability to finance growth with their own money. These conditions can also challenge their ability to obtain the finacing they seek, because some of them may be less likely to meet standard credit criteria. For openers, depending on the size of the transaction, these firms need have at least 2 to 5 years of time in business under their present management team.

Firms that are acquiring high-tech equipment worry about obsolescence, so they tend to lease as a way of transferring the risk of ownership. The leasing study indicated that small to medium size firms are buying into the risk transfer benefit, due to the fact that these firms have fast changing technology requirements or are experiencing rapid growth rates. These conditions require a turnover of equipment combined with a lower outlay of working capital.

It is important to note that price is not as important when saving working capital, improving cash flow, transferring risk and gaining tax benefits are the alternatives. RSR can help you connect the dots between having the most modern and prodiuctive equipment in your firm without sacrificing your financial strength.

We want to remind you that our goal is to simply help you improve your productivity and profiability, because our success depends upon yours. When you get ready to plan for your next equipment acquisition, you should give us a call. We can even put programs together that allow you to skip payments during the year. This is especially useful to firm who have seasonal sales. RSR can put a financing program together for you that will make a real difference for your firm.