Fiscal Responsibility

  • Uncategorized

I would like to start with the Finance Cost of lease/rent versus purchase (borrow money)….


Two major advantages you need to consider are (1) the tax advantages and (2) to use renting/leasing as a form of off-balance sheet financing. 

Think of it this way, when you go to purchase a home or automobile the bank will look at your personal debt and depending upon your debt/risk your interest rate will be determined.  The same is true in business.  The more debt you have the higher your cost to borrow money.  Typically the bank is going to look at your Current Ratio and your Debt to Equity Ratio. When you lease or rent you will not carry the debt on your balance sheet you will treat it as an expense, thus you have essentially created Off-Balance sheet financing. 

If you purchased a Doble F6150 and  HV Diagnostics HVA90 your debt load would go up considerable to finance that out.  You also have the option of paying cash for the equipment up front but who wants to lay out that amount of money up front when everyone is trying to preserve cash.
  
My question is would you be able to make more money if you were to use your capital to hire another technician to actually generate income or to purchase equipment that is going to your overhead?  You make money with technicians not equipment. 

Should you choose to lease or rent your equipment then your cost to borrow money should be less thereby making those long-term liabilities more affordable. Remember reducing your debt load makes you more attractive to banks.  Having higher liquid assets makes you attractive to banks.
 
It might look good to have a lot of equipment in a tool room but the negative fiscal effects of that decision far out way the positives.  If you only use a VLF Hipot, Secondary Injection Test Sets, Relay Test Sets once a quarter or less it makes no fiscal sense to own the equipment.