Q: I'm looking for a partner for my business. I wondered if you had any suggestions about how to find one.
A: The best business partner is someone you have a long track record of working well with--a person with whom you share common goals, philosophies and work styles. The more experience you've had working together, the better. But don't despair if there's no one in your existing pool of contacts you want to team up with. You can find partners by networking through professional and trade organizations or by getting referrals from others whose judgment you value. Here's what we suggest:
- Don't go directly from stranger to business partner. That's like getting married after the first date. Instead of telling people you're looking for a business partner, put the word out that you're seeking an associate to do a joint venture with. This initial joint venture should be a short-term, discreet project that allows you to get to know a prospective partner and see whether you have the right chemistry. In fact, do several short-term projects or joint ventures together before committing to a formal, legal partnership. This helps ensure your initial assessment is accurate and that you can, in fact, trust each other and work well together.
- Ask for referrals from people who know people who will meet your criteria. For example, you might ask for referrals from the officers of a trade association, the president of the local chamber of commerce, the editor of a trade journal, or a valued supplier or client.
- Judge candidates by their qualifications, not their geography. These days, you don't have to limit yourself to teaming only with colleagues in nearby areas. Many people are successfully using e-mail, fax machines and the telephone to team up with associates anywhere in the nation or even in other countries.
Q: I'm thinking about acquiring a new van for my business and upgrading my computer system. Should I lease or buy?
A: The choice to rent, lease or buy has tax consequences and evokes other important business considerations. For example, leasing might enable you to get a better van or computer than you could otherwise afford. Because leasing is normally equivalent to 100 percent financing, it might allow you to keep more working capital on hand--and allow you to pay for the items out of your earnings rather than tap your savings or get a home-equity loan.
But then, of course, you'll have to qualify for a lease, which means you must have good credit (although probably not as flawless for leasing office equipment and furniture as for leasing a van). As a general rule, if you're leasing under your business name, most companies require you to have been in business for at least a year. Fortunately, some businesses, such as computer companies like Gateway, Dell and Micron, have leasing programs based on both your consumer and business credit histories.
Leasing has a cash advantage over purchasing on credit because a lease usually requires little or no down payment, while a credit purchase may require 20 percent to 30 percent down. However, leasing is much more expensive than buying because it includes charges to cover overhead and profit. Technological obsolescence is one incentive often cited for leasing. At the end of a lease period, you can give back equipment that may have significantly decreased in market value.
In terms of taxes, when you rent or lease on a daily, weekly or monthly basis, you're incurring an ordinary business expense, whereas a purchase is subject to depreciation or, if it qualifies, being a Section 179 capital expense deduction. Because tax laws are constantly changing and subject to numerous exceptions to exceptions, we suggest you consult your tax specialist before making a decision about leasing.
Taking all this into account, you can see there's no stock answer as to whether renting, leasing or buying is best. If you do decide to lease, here are several points to consider in negotiating:
- The exact nature of the financing agreement. Does it have liens or restrictions?
- The amount of each payment. Look for add-on and document-processing fees, termination penalties and so on.
- Who is responsible for insurance, maintenance and taxes. (The lessee usually is.)
- What happens to the leased item at the end of the lease.
- Renewal options.
- Cancellation penalties, if any.
- LDisadvantageous terms and conditions.
- Length of the lease period.
If you have a question for Paul and Sarah regarding a homebased business issue, e-mail email@example.com or send it to "House Calls," Entrepreneur's HomeOffice, 2392 Morse Ave., Irvine, CA 92614.