Feeling Pinched for Business Expenses? Here Are 3 Ways to Use Leasing to Your Advantage.
If your business budget lives on the back of a napkin, you’re not alone. A survey from Clutch indicated that just 26 percent of small businesses polled in 2018 had nothing beyond an official documented budge. Many of those companies basically were flying blind, making it more difficult for them to identify available capital, accurately plan for expenses and anticipate incoming revenue.
With a properly outlined budget, however, keeping track of finances will no longer be a guessing game. Businesses can find it easier to overcome obstacles and pursue new opportunities while ensuring that their highest-priority initiatives receive plenty of funding.
Is yours one of those companies trying to accomplish more with less? Leasing can be a great way to get access to equipment and services without purchasing anything outright. With a capital lease, the assets and liabilities associated with a specific item will be placed on your balance sheet, allowing you to depreciate the asset over time. If it's possible you'll want to buy the equipment at the end of the lease period, a capital lease is a great option.
By contrast, equipment acquired through an operating lease stays off your balance sheet -- and any depreciation benefits go to the lender. So, if the equipment you want is going to depreciate quickly, and you plan to replace it once the lease ends, you'd be wise to go with an operating lease.
Beyond enabling businesses with smaller budgets access to the tools they need to grow, leasing can also smooth out unforeseen expenses. Leases often come with full service attached, which means you aren't on the hook for costly repairs if anything goes wrong with the equipment you're leasing. An outright purchase, on the other hand, could break down a few months in and require you to spend unexpected funds.
Leasing also allows for some creative business models. For instance, private aviation companies like JetSuite and Blade essentially rent out private jets and allow customers to pay anywhere from hundreds to thousands of dollars for a private flight. Because only the wealthiest people can afford to buy their own private jets, this type of program allows more people to experience this luxury without the multimillion-dollar price tag.
Even if you're not renting a private jet anytime soon, leases can be an effective tool to help your startup get off the ground. No matter what type of business you’re running, here are three ways to use leasing to your advantage:
1. Revamp your tech infrastructure.
Specialized software used to be prohibitively expensive for many smaller businesses, but monthly fees instead of outright purchases are offering everyone access. A struggling graphic designer wouldn’t be able to pay thousands of dollars for Photoshop, but $20 per month is reasonable for even the most budget-conscious users.
The cloud and services such as Amazon’s AWS have done the same thing with hosting, making major investments in expensive server equipment a thing of the past. Whether you’re leasing software or hardware, you’re getting the infrastructure you need to run your business for a predictable monthly fee. Knowing what you owe month after month allows you to use capital more effectively, and leasing makes scaling your business easier as your needs grow.
2. Think differently about energy efficiency.
Until about 2007, solar panels were a cash purchase -- and a significant one at that. Back then, companies such as SolarCity (now Tesla) and SunRun emerged with lease financing, turning a difficult cash sale into something that cost nothing up-front and provided immediate savings.
In the same way, our company, EverWatt Lights, is pioneering the concept of "lighting as a service." We front the cost for a business to upgrade from old, energy-intensive lighting to LEDs, and customers pay for the upgrade over time using a fraction of their electricity savings. Both solar leases and lighting-as-a-service options provide the same style of all-inclusive service you might experience when you lease a car.
3. Get creative with your office space.
The decision to buy or rent office space is often dictated by price and availability, but the time frame should be one of the most important factors. In the short term, leasing is a more attractive option because it provides the most flexibility. If a better location becomes available or your business begins to outgrow its original headquarters, you aren’t tied to a property.
Shared workspaces making short-term rentals even more attractive include the WeWork Go option which recently launched in China. WeWork Go users can use an app to check available space in nearby offices (in real time), find one they like and pay for the workspace by the minute -- allowing them to avoid committing to yearlong (or even month-long) leases to rent an office.
Stretching a thin budget to meet a variety of needs is one of the biggest challenges entrepreneurs face. By using leases creatively for everything from real estate to operating equipment, businesses of all sizes can get the most out of every dollar.