WHY Equipment LEASING HAS BECOME SO POPULAR
IN THE AUTOMOTIVE INDUSTRY
Everything you always wanted to know….
In today’s rapidly changing business environment many companies are looking for alternative ways to fund equipment purchases. Leasing has become a popular equipment financing option. A recent discussion with the owner of a body shop in my home town points out that there are still people in this country that still do not understand the truth about leasing.
His comments to me were, “Leasing is for companies who can’t afford to do business in cash” and “Why should I pay a fee to use someone else’s money when we have plenty of our own?”
My question to the owner was, “Why waste cash on assets that may quickly become obsolete and could be losing value for your business the minute you turn on the switch?”
Paying Cash: The Concept!
Most people pay cash because they have it. It is sitting there in the bank just waiting to be spent on something productive like a new piece of equipment.. Besides if you pay cash for that new equipment you don’t have to mess with those pesky monthly payments. Additionally, since you feel you own the equipment, you think you can depreciate it, which is a great write-off that helps you lower your taxes. In your mind you feel paying cash is an excellent way to go.
Paying Cash: The Fallacy!
Many times an example makes the point best, so let’s use an example to make a very important point here. Let’s assume you hire a good friend of yours to work for you. You have agreed to hire him for $40,000 per year because in your analysis you have determined that his employment will either make you or save you an amount in excess of that. Now he comes to you and agrees to sign a binding contract of employment where he promises to work for you for the next 5 years under well-defined conditions. As a result he wants his salary of $200,000 right now. I assume you would decline his offer because as a good businessman you are aware of the two basic concepts that come into play here: (1) you are going to pay him out of the cash flow he makes or saves you; and (2) why pay in today’s dollars what you can pay in tomorrow’s dollars? This same concept is as basic to purchasing equipment as it is to hiring employees. You should let the equipment pay for itself out of the cash flow it generates for you over its useful life & use inflated dollars to do it.
I know you have heard this important quote in your life at least once: “Always pay cash for things that appreciate in value & always lease things that depreciate in value”. As I write this article I don’t want to get into all the benefits of leasing and why you should consider it, I believe we are well past that these days. Well over 80 million companies lease their equipment and it make sense. This article is to point out why leasing has become so popular in the automotive industry. I truly feel the number one reason leasing is booming these days is from the “ Jobs and Growth Tax Relief Reconciliation Act of 2003”. President Bush signed into law this “Act”, which reduced taxes and provided incentives for business investment. Of particular importance to our customers are the following provisions: Expensing Depreciable business assets – IRS Section 179. The primary benefit of making an equipment purchase before the end of the year is tax deduction that a business will receive from what’s known as first-year expensing under Section 179 of the Internal Revenue Code. You are now able to deduct up to $103,000 of the cost of the equipment during the year that it is purchased, (but not necessarily paid for) and placed in service after May 5, 2003. A business customer is free to pick any equipment that the company needs from the vendor of its choice.
Section 179 is designed to help businesses grow their company.
There has never been a better time to purchase new or used equipment.
Leasing works for any type of business. Every imaginable type of organization leases throughout the world including proprietorships, partnerships, corporations, and government agencies, religious and non-profit organizations. Over 80% of American businesses lease at least one of their equipment acquisitions and nearly 90% say they would choose to lease again.
Michael Choma is President and CEO of Innovative Capital Corp. His commercial finance company provides “innovative & creative” leasing solutions for all types of businesses. Michael’s ongoing goal is to be able to educate customers on leasing and to explain every tax advantage so that his customers may take full advantage of all of the benefits made available
888-869-0070 Ext. 201.
IN THE AUTOMOTIVE INDUSTRY
Everything you always wanted to know….
In today’s rapidly changing business environment many companies are looking for alternative ways to fund equipment purchases. Leasing has become a popular equipment financing option. A recent discussion with the owner of a body shop in my home town points out that there are still people in this country that still do not understand the truth about leasing.
His comments to me were, “Leasing is for companies who can’t afford to do business in cash” and “Why should I pay a fee to use someone else’s money when we have plenty of our own?”
My question to the owner was, “Why waste cash on assets that may quickly become obsolete and could be losing value for your business the minute you turn on the switch?”
Paying Cash: The Concept!
Most people pay cash because they have it. It is sitting there in the bank just waiting to be spent on something productive like a new piece of equipment.. Besides if you pay cash for that new equipment you don’t have to mess with those pesky monthly payments. Additionally, since you feel you own the equipment, you think you can depreciate it, which is a great write-off that helps you lower your taxes. In your mind you feel paying cash is an excellent way to go.
Paying Cash: The Fallacy!
Many times an example makes the point best, so let’s use an example to make a very important point here. Let’s assume you hire a good friend of yours to work for you. You have agreed to hire him for $40,000 per year because in your analysis you have determined that his employment will either make you or save you an amount in excess of that. Now he comes to you and agrees to sign a binding contract of employment where he promises to work for you for the next 5 years under well-defined conditions. As a result he wants his salary of $200,000 right now. I assume you would decline his offer because as a good businessman you are aware of the two basic concepts that come into play here: (1) you are going to pay him out of the cash flow he makes or saves you; and (2) why pay in today’s dollars what you can pay in tomorrow’s dollars? This same concept is as basic to purchasing equipment as it is to hiring employees. You should let the equipment pay for itself out of the cash flow it generates for you over its useful life & use inflated dollars to do it.
I know you have heard this important quote in your life at least once: “Always pay cash for things that appreciate in value & always lease things that depreciate in value”. As I write this article I don’t want to get into all the benefits of leasing and why you should consider it, I believe we are well past that these days. Well over 80 million companies lease their equipment and it make sense. This article is to point out why leasing has become so popular in the automotive industry. I truly feel the number one reason leasing is booming these days is from the “ Jobs and Growth Tax Relief Reconciliation Act of 2003”. President Bush signed into law this “Act”, which reduced taxes and provided incentives for business investment. Of particular importance to our customers are the following provisions: Expensing Depreciable business assets – IRS Section 179. The primary benefit of making an equipment purchase before the end of the year is tax deduction that a business will receive from what’s known as first-year expensing under Section 179 of the Internal Revenue Code. You are now able to deduct up to $103,000 of the cost of the equipment during the year that it is purchased, (but not necessarily paid for) and placed in service after May 5, 2003. A business customer is free to pick any equipment that the company needs from the vendor of its choice.
Section 179 is designed to help businesses grow their company.
There has never been a better time to purchase new or used equipment.
Leasing works for any type of business. Every imaginable type of organization leases throughout the world including proprietorships, partnerships, corporations, and government agencies, religious and non-profit organizations. Over 80% of American businesses lease at least one of their equipment acquisitions and nearly 90% say they would choose to lease again.
Michael Choma is President and CEO of Innovative Capital Corp. His commercial finance company provides “innovative & creative” leasing solutions for all types of businesses. Michael’s ongoing goal is to be able to educate customers on leasing and to explain every tax advantage so that his customers may take full advantage of all of the benefits made available
888-869-0070 Ext. 201.
CEO Jody Burkeen
Paint Booth Technologies
http://www.paintboothtechnologies.com
1-888-815-3745
