Writen by Steve Hanson
All small businesses need equipment and your cleaning business is no exception. But you don't necessarily have to buy the equipment to run your cleaning business successfully. Depending on your circumstances, leasing may be a better choice than buying every piece of equipment you need for your cleaning business.
What is a lease? A lease is an agreement in which you have the use of a piece of equipment, but you do not own it. The user (the lessee) makes payments to the owner of the equipment (the lessor). Leasing has become a common business practice. The U.S. Small Business Administration (SBA) reports that equipment leasing has risen about 20 percent over the past two years. And, according to the Equipment Leasing Association, 8 out of 10 U.S. businesses lease all or part of their equipment.
There are several advantages to leasing equipment:
1. Leasing is flexible. As your business grows your needs may change. Leasing allows you to add or upgrade equipment. Lease terms vary from 12 months to 60 months. You may even be able to upgrade your equipment during the original lease period.
2. Capital conservation. In today's financial environment, you can lease equipment with little or even no money down. If you have to borrow money to buy a piece of equipment you may have to put money down that you could have used in other areas of your business, such as marketing or wages. Leases generally require little or no down payment so it is likely you may be able to get more equipment or higher quality equipment than you could by buying.
3. Fixed predictable payments. When structuring the payments of a lease, look for fixed, monthly payments. This will protect you against rising interest rates and help you to project your cash flow outlays.
4. Leasing is cost-effective. Equipment in itself is costly and can also incur unexpected breakdown or repair costs. Most leased equipment is maintained and repaired by the owner of the equipment.
5. Tax advantages. Operating leases are generally 100 percent tax deductible as a business expense and are paid out of pre-tax earnings instead of after-tax profits.
6. Not having to deal with obsolete equipment. In today's business society, manufacturers constantly upgrade equipment and add new features. By leasing you can always be using the most up-to-date equipment. You also are relieved of the problem of getting rid of an outdated piece of equipment.
7. Convenience. Applying for a lease is generally easier than applying for a loan. Loans generally require large amounts of paperwork and copies of financial reports or tax returns. A lease agreement typically involves a brief application form and may not require supporting financial documents.
Before leasing, go through the following list of questions from the Equipment Leasing Association:
Before Leasing:
1. How am I planning to use this equipment?
2. Does the leasing representative understand my business and how this transaction helps me to do business?
During
3. What is the total lease payment and are there any other costs that I could incur before the lease ends?
4. What happens if I want to change this lease or end the lease early?
5. How am I responsible if the equipment is damaged or destroyed?
6. What are my obligations for the equipment (such as insurance, taxes and maintenance) during the lease?
7. Can I upgrade the equipment or add equipment under this lease?
After
8. What are my options at the end of the lease?
9. What are the procedures I must follow if I choose to return the equipment?
10. Are there any extra costs at the end of the lease?
When leasing equipment it is important to understand the terms of the lease. Getting answers to the above questions will help you get all the information you need about your lease and avoid surprises or hidden costs after you sign the lease.
With leasing you do not own the equipment, but your cleaning business has the advantage of using the latest equipment and staying on top of technological advances. With the many benefits of leasing, it may be a better choice for your company than the outright purchase of an expensive machine.
If you would like to compare the costs of buying as opposed to leasing, use the "Buy or Lease Calculator" found here.
Steve Hanson is co-founding member of The Janitorial Store (TM), an online community for owners and managers of cleaning companies who want to build a more profitable and successful cleaning business. Sign up for Trash Talk: Tip of the Week at http://www.TheJanitorialStore.com and receive a Free Gift! Read cleaning success stories from owners of cleaning companies at http://www.cleaning-success.com/.
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