As 2009 draws to a close, cash flow management is still a high priority for most small businesses these days due to the ongoing impact of the current recessionary forces.
In order to preserve cash and get more purchasing power, here are some small business cash flow management tips to consider if you’re not already doing them.
Equipment Leasing. Now a days you can get equipment leases for just about anything over $1,000 in value. If you have good credit, you can secure some pretty attractive leasing rates and if you’re buying something that offers a manufacturer sponsored program, the financing costs can be extremely low.
You still have to crunch the numbers to see what comparable products are worth from other suppliers as its a common strategy to give you a great financing package and then jack up the price to offset what the seller is subsidizing on the equipment financing side. But in a recession, where sales are down, you may be surprised at the opportunities that exist for both a great purchase price and a great financing package. In some cases, it may even be cheaper than just paying in cash.
Ultimately, there is going to be a net cost for financing, likely, but if you’re taxable, there is a tax deduction to be had and when the interest rates at all time lows like they are right now, a small cost of financing that allows you to maximize your available cash is definitely something to consider.
Equipment leases offer other cash advantages as well, especially for businesses with good to great credit. In most cases, you will be able to buy assets for no money down except for one or two lease payments paid in advance. This high degree of leverage again conserves on valuable cash flow.
I’m not going to get into the operating versus capital lease discussion other than to say that an operating lease needs to provide some significant benefit to you because it will cost more per dollar financed than a capital lease. With a capital lease, you basically agree to purchase the asset at the end of the lease from the lease company and you agree to do this at the time the lease is entered into. Capital leases tend to provide you with the lowest cost financing options as there is no back end risk to the leasing company.
Additionally, regardless of your credit rating, equipment leasing defers the related sales tax associated with the purchase meaning that you only pay sales taxes on your lease payments when they come due versus having to pay 100% of the sales taxes at the time the asset was purchased in a cash transaction.
And if you get the chance to get a great deal by making a cash purchase, get the deal done, then go to an equipment leasing company, sell them the asset and take back a lease (sale and lease back).
Equipment financing companies will allow you to do this up to 6 months after purchase and they will even consider private sale transactions.
This way, if you have the available cash, you can negotiate hard and get the best deal without having to try and arrange financing at the same time. If you’re concerned about being able to qualify for credit after the fact, you can go and get pre-qualified for an equipment lease for the amount of money you’re looking to spend and the type of asset you want to acquire.
Equipment leasing can be a very effective cash flow saving strategy. To get the best use of this tool, make sure that you always crunch the numbers to determine the best approach to maximize both the cash flow savings and purchasing discounts.