10 Reasons Why Companies With High Cash Reserves Still Choose to Lease
To shed light on why cash-rich companies still opt for equipment leasing, we’ve gathered ten insightful responses from founders, CEOs, and other industry professionals. Their reasons range from maintaining liquidity and agility to offloading maintenance responsibilities. Dive into this article to explore the diverse perspectives on this intriguing business decision.
- Maintaining Liquidity and Agility
- Leveraging Tax Benefits
- Ensuring Equipment Suitability
- Avoiding Equipment Liability
- Accessing Advanced Tech and Predictable Payments
- Addressing Temporary Production Needs
- Lessening Rapid Asset Depreciation
- Preserving Cash Flow
- Enhancing Financial Ratios and Creditworthiness
- Offloading Maintenance Responsibilities
Maintaining Liquidity and Agility
In the financial world, cash is king, but it’s not always wise to spend it all at once. Think of a company’s cash reserve like a squirrel’s stash of acorns. Sure, the squirrel could feast on all its acorns today, but what about tomorrow?
Similarly, companies with high cash reserves often choose to lease equipment to maintain liquidity. Leasing is like renting a tuxedo for a gala event. You get to look sharp and make an impression without the hefty price tag of ownership. It’s a strategic move that allows companies to stay agile, ready to pounce on opportunities or weather unexpected storms.
After all, a squirrel wouldn’t want to be caught without an acorn when winter comes, would it?
James Allen
Founder, CPA, CFP, CFEI, Billpin.com
Leveraging Tax Benefits
Despite having ample cash reserves, businesses opt for equipment leasing due to compelling tax benefits. Leasing allows them to deduct monthly lease payments as operating expenses, potentially qualifying for off-balance-sheet treatment. This ensures compliance with financial commitments, capital budgets, and boosts their financial standing.
Additionally, tax benefits like Section 179, bonus depreciation, and qualified leasehold improvements offer opportunities for cost deduction over time, resulting in significant tax savings. These tax incentives make leasing an appealing choice for financially strong companies.
Tobias Liebsch
Co-Founder, Fintalent.io
Ensuring Equipment Suitability
As a serial entrepreneur, I’ve often found myself with pretty diverse needs for office equipment. It’s hard to know if the setup I had for one business will translate well to the next, so buying thousands of dollars’ worth of equipment without getting an optimized setup in place seems like a foolish gamble. It’s best to lease for a while, or take part in a lease-to-buy scheme, to make sure you’re getting what you actually need after a solid trial run.
Kate Kandefer
CEO, SEOwind
Avoiding Equipment Liability
When I lease equipment, even if I have the money to buy it outright, it’s because at the end of the day I don’t really want the liability for those products. Office equipment breaks down at an alarming rate, even the pieces from reputable companies. Knowing that repair and replacement is included in my monthly fees and I won’t have to worry about a potential cash bomb depleting my reserves is great for my peace of mind.
Onno Halsema
CEO, Contentoo
Accessing Advanced Tech and Predictable Payments
Leasing lets businesses get the latest and most advanced equipment without a huge upfront investment. Instead of using up all their cash reserves to buy equipment outright, companies can use that money for other important areas like marketing, research and development, or expansion. Leasing also gives businesses predictable monthly payments, making budgeting and cash-flow management easier.
Plus, leasing allows companies to upgrade or replace equipment as needed, so they’re always on top of the latest technology without having to worry about maintenance and repair costs.
Loren Howard
Founder, Prime Plus Mortgages
Addressing Temporary Production Needs
One common reason why many companies decide to lease their equipment is to use them for producing temporarily-needed items. This also holds true for corporations with high cash reserves, given the improved flexibility this allows.
Businesses with high cash reserves typically prioritize emergent cases when using this capital. One might need particular items at a specific period but not require the same services later. Indeed, having a high cash reserve allows these companies more leeway to invest in multiple things than a smaller business can.
However, making wise purchases is necessary to ensure long-term profits and less risk. So, buying pieces of equipment, typically at high prices, for temporary production needs is not economical in the long run. When they lease the same equipment for a set period, they can use it to the best of their capability only when needed.
Loretta Kilday
DebtCC Spokesperson, Debt Consolidation Care
Lessening Rapid Asset Depreciation
Personally, regardless of my level of cash reserves, I would consider top-of-the-line office equipment to be something of a waste of money. The assets depreciate extremely quickly, and even the best in the business have their product degrade and break inside of 10 years more often than not. It just isn’t worth the money to buy that kind of equipment when you can lease it for a fraction of the price and upgrade as needed.
Dragos Badea
CEO, Yarooms
Preserving Cash Flow
Preserving cash flow is crucial for companies, especially during growth or economic uncertainty. Leasing offers an attractive alternative to upfront equipment purchases, allowing businesses to maintain a healthy cash reserve for strategic investments and operational needs.
By leasing, companies can allocate funds to areas that drive revenue generation and long-term sustainability. This becomes particularly significant in industries with substantial equipment costs, such as manufacturing, technology, or healthcare. Leasing enables companies to access necessary equipment while spreading costs over time, avoiding the strain of a significant capital outlay. Preserving cash flow gives businesses greater financial flexibility and agility, empowering them to respond swiftly to emerging opportunities or challenges.
As a result, companies can focus on driving innovation, expanding market presence, or adapting to changing market demands, fostering a competitive edge in their respective industries.
Bill Lyons
CEO, Griffin Funding
Enhancing Financial Ratios and Creditworthiness
Off-balance-sheet financing is one reason why companies with high cash reserves choose to lease equipment.
By leasing, companies can keep the debt off their balance sheets, improving financial ratios and creditworthiness. This approach provides more attractive financial statements to stakeholders, enhancing the company’s reputation and potentially facilitating access to better financing terms.
For example, a manufacturing company with ample cash reserves might lease production machinery instead of purchasing it outright. By keeping the equipment lease off their balance sheet, they can present a stronger financial position, which can be advantageous for obtaining loans or attracting investors.
Jason Cheung
Operations Manager, Credit KO
Offloading Maintenance Responsibilities
Companies with high cash reserves may choose to lease equipment to offload maintenance and support responsibilities to the lessor. This allows them to focus on core business activities while ensuring their equipment is properly serviced and repaired.
For example, a manufacturing company with high cash reserves may lease production machinery with included maintenance and support services. This ensures that the machinery operates smoothly, minimizing downtime and maximizing productivity.
By relying on the lessor’s expertise and resources, the company can optimize equipment performance without diverting its own resources towards maintenance and repairs.
Roy Lau
Co-Founder, 28 Mortgage
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