4 Reasons Leasing New Equipment is Smart in an Economic Downturn
Hit the brakes. The economy has slowed down again!
There is a lot of that kind of talk going around these days, especially in the province of Alberta where I live.
For many business managers, it is lousy advice. Absolutely, it’s important to manage costs and create new efficiencies—and in some cases survival depends on it right now. In the energy sector, boom-time ways are completely unsustainable when oil is cheap.
Of course operating efficiently and intelligently should always be focal, not just during a downturn.
Here at Minerva, most of our clients are in clinic and medical equipment leasing, so fortunately for many of them business is less volatile.
But even so, practitioners like chiropractors, optometrists and medical spas are seeing the impact of a reduction in available cash and the erosion of consumer confidence. Not everything is covered by insurance, and folks are holding tight to their money.
So why would anyone get into an equipment lease during what could be the height of the downturn? Here are four really good reasons:
1. Keep Things Predictable
No one knows how long it will take for the economy to turn around—or for that matter how long things will stay peachy when it does. That’s life, and that’s business. Equipment leasing is wonderfully predictable. You know exactly what your low monthly payments will be, and for how long.
2. Preserve Available Cash
Whenever you buy a large piece of equipment, it takes an equally large chunk of available cash out of your hands. If a major unexpected cost were to appear, you might have to slash costs and seek outside financing to recover. By leasing, your cash cushion remains available for investment, payroll or emergencies. If you have money on hand, leasing lets you self-insure against the unexpected.
3. Save on Taxes
For many businesses this is the greatest benefit of leasing. Not only can you pay for your equipment as it generates revenue, but your lease payments are 100% tax deductible. If you buy equipment, you can only write off the annual depreciation, and usually up to a maximum of 90%. With leasing, it is usually possible to expense the full value. Talk to your accountant about how it would work for your situation, and you’ll see why leasing is the clear winner.
4. Preserve Momentum
Boom-bust cycles are brutally inefficient. Think about driving your car in city traffic compared to on the open highway. There is waste in ramping up to full speed, only to suddenly grind to a limping pace again. Leasing helps you lock your business on cruise control, making decisions based on where you want to go rather than on what might be lurking ahead. Ongoing low costs (that you can write off) are far more manageable than mountainous, painful lump sums. It may also help you avoid a recruiting-layoff cycle that is very costly and terrible for morale. This is why businesses that cruise ahead during the downturns are miles ahead of knee-jerk competitors when the financial picture improves.
The only certainty is that surprises will crop up, and it’s dangerous to be paralyzed by fear. What are you putting off that can make your practice more marketable and more effective right now?
Give me a call at 780-439-1552 or email me if you have any questions. Advice is always free!