By curious business owners I get asked this question a lot: "What kind of leases are there? What's the dang difference?"
So, finishing up some paperwork I thought I would just riff a little bit about this topic...
The Operating Lease is typically the more favored leasing choice for small to mid-size businesses. This breaks down in the way that the Leasing Company retains ownership of the equipment, and the monthly payments for the business owner are considered a monthly operating expense and fully tax deductible. Business owners like this because it keeps their balance sheets light in the knickers, and money is able to flow where needed.
The Capital Lease is like the friendly step sister to a typical loan... Lots of similarities between the two. Here, the equipment is considered to be "owned" by the business, it shows up on your balance sheet as an asset - and as such the business assumes some of the risks and some of the benefits of ownership.
Buy-out Options: Behind Door Number One we have The FMV option. Fair Market Value! This means that you can easily purchase the equipment at the end of your lease terms for its "Fair Makrket Value" ... Could be hundreds of dollars, typically nothing insane. Behind Door Number Two we have the $1 buy-out option. This is simply, at the end of your lease - the equipment can be yours for merely four quarters.
Lots of things go into WHY you should choose exactly which lease, with which Buy-out option... Make sure you have someone trustworthy that you can bounce your thoughts off of.
Thursday, May 8, 2008
Your Credit Score is Your Weapon.
In the grown up world, your credit score is your weapon...
So, are you fighting with an AK 47, or a slingshot? Many of us have messed around in our youth muddying up our credit (GUILTYYY!) - we didn't really understand the implications or the importance, it didn't seem real! It felt like a play number, and it was boring to think about. Then BAM, all of a sudden you grow up and before you can do ANYTHING, before you can even buy a cell phone, they are asking for your credit score - and running credit checks.
When I woke up one day and realized that my credit score was my responsibility, I was horrified. It was true - I had some repair work to do. With some diligence and some effort, and some RELUCTANT changes in my behavior I achieved a good score. You can do the same.
Pay your bills on time. A good trade reference, meaning proof that you follow your payment schedule and pay your bills on time is HUGE. Often times when I am writing lease deals - and the credit is borderline and the lender may go either way, I can eek out an approval by showing history of on time payment. I live by my online bank auto bill pay, you simly set it and forget it.
Get a credit card, do your research for the low interest rates - if you have the abilty to do so join a credit union. With your credit card start making little purchases that you KNOW you can pay off in full the next month. This aids in building your credit history, as lenders see having NO credit equally as bad as having poor credit.
Check your own credit report. Dont be surprised by the number when a professional tells you, know where your score lands. Also, go through your credit reports with a fine tooth comb, because recent studies show that over 80% of us have mistakes on our credit report! That's a huge number of us that are walking around suffering for crimes that we didn't commit!
It might even be worthwhile to sign up with a "credit mending" professional. For a small fee, and over the period of a few months they work to PERMANENTLY erase black marks from your credit and elevate your score. I have a few companies that I have had good experiences with in this vein, and would be happy to recommend them to anyone in need (I can also try to work a discount on services for you).
My last tip is: Be as mean as a prison guard when it comes to unnecesary checks of your credit (NO offense meant to kindly prison guards)! Everytime your credit is checked it does weaken your score a smidge - and often times companies are careless and because of poor communication within the company, they will check your credit multiple times for ONE transaction. It is YOUR business, make sure you ask the right questions and show them that you are vigilant and these types of mistakes are less likely to affect you.
Good Luck, and here's to EXCELLENT credit for all of us!
So, are you fighting with an AK 47, or a slingshot? Many of us have messed around in our youth muddying up our credit (GUILTYYY!) - we didn't really understand the implications or the importance, it didn't seem real! It felt like a play number, and it was boring to think about. Then BAM, all of a sudden you grow up and before you can do ANYTHING, before you can even buy a cell phone, they are asking for your credit score - and running credit checks.
When I woke up one day and realized that my credit score was my responsibility, I was horrified. It was true - I had some repair work to do. With some diligence and some effort, and some RELUCTANT changes in my behavior I achieved a good score. You can do the same.
Pay your bills on time. A good trade reference, meaning proof that you follow your payment schedule and pay your bills on time is HUGE. Often times when I am writing lease deals - and the credit is borderline and the lender may go either way, I can eek out an approval by showing history of on time payment. I live by my online bank auto bill pay, you simly set it and forget it.
Get a credit card, do your research for the low interest rates - if you have the abilty to do so join a credit union. With your credit card start making little purchases that you KNOW you can pay off in full the next month. This aids in building your credit history, as lenders see having NO credit equally as bad as having poor credit.
Check your own credit report. Dont be surprised by the number when a professional tells you, know where your score lands. Also, go through your credit reports with a fine tooth comb, because recent studies show that over 80% of us have mistakes on our credit report! That's a huge number of us that are walking around suffering for crimes that we didn't commit!
It might even be worthwhile to sign up with a "credit mending" professional. For a small fee, and over the period of a few months they work to PERMANENTLY erase black marks from your credit and elevate your score. I have a few companies that I have had good experiences with in this vein, and would be happy to recommend them to anyone in need (I can also try to work a discount on services for you).
My last tip is: Be as mean as a prison guard when it comes to unnecesary checks of your credit (NO offense meant to kindly prison guards)! Everytime your credit is checked it does weaken your score a smidge - and often times companies are careless and because of poor communication within the company, they will check your credit multiple times for ONE transaction. It is YOUR business, make sure you ask the right questions and show them that you are vigilant and these types of mistakes are less likely to affect you.
Good Luck, and here's to EXCELLENT credit for all of us!
Wednesday, May 7, 2008
LEASE OR BUY?
What is so important about making the right decision between leasing and buying equipment?
Not to be overly dramatic so early in the morning, but the decision you make on the above question could be the difference between your business succeeding or failing. Cash-flow is the number one reason businesses, especially new businesses, flail and then fold.
With Equipment leasing there is no hefty down payment required, allowing you to keep your money in the bank, in a high yield savings account, or even in the stock market (although risk is involved with the latter) working FOR YOU. That money is in turn at the ready for use, should you encounter unexpected costs in doing business (which we, as business owners, ALWAYS encounter unexpected costs) you have an account full of money to get you through. Plus, your personal credit lines are untouched - as leasing doesn't affect your credit. So, should you need to take drastic measures, and get a loan of some sort, the leasing debt will not appear and interfere with your ability to secure funding. Again, these simple small measures can actually keep your business afloat.
Another angle for business owners: you need to evaluate the type of equipment you are in need of... as most equipment is continually, and tirelessly upgraded. And with leasing rather than "owning" you can fully combat obsolescence; that way you won't get stuck owning a "dinosaur."
All of these things factor in to how truly important it is to make the right decision, when at the crossroads of Equipment Leasing vs. Purchasing. In the end, study the facts, talk to professionals - and understand that there is no right or wrong answer, there is ONLY what is right for you and your business right now.
Never Pay CASH for Equipment!
Chances are you don't have a bank account full of idle cash, just exploding with 0's - and ready to be spent willy nilly. BUT, even if you did (and I hope you do!) PLEASE don't pay cash for your equipment outright.
But, Crystal - why not?
Because any business expert will tell you, and I agree, that there is always an area of your business that needs to be IMPROVED. There is always a sector of your business that needs attention, where the money would be better spent.
Because the future is unknown, what if next month is filled with curveballs and you need capital to solve the dilemma?
Because the second you pay for your piece of equipment - it has ALREADY depreciated. And that depreciation is your loss. Whereas with leasing the depreciation (of up to $125,000) is tax deductible.
If you are itching to spend your money and purchase the equipment outright, do so, but then LEASE it back to yourself.
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