MONEY TIPS
Essentials on leasing equipment.
When purchasing equipment for your franchise business, whether it be for a new location or as part of an expansion or refurbishment, you will no doubt be faced with a wealth of options. While there is no one-size-fits-all solution for every business, many franchise buyers believe purchasing the equipment for the franchise outright to be the more affordable option.
The reality is, in the long run this is not always the case – it can even end up costing you more. Asset rentals, leasing and business loans are smart alternatives to investing your capital into buying equipment outright, and can help take the stress out of opening or expanding your franchise business.
UNDERSTAND YOUR OPTIONS
Having a greater understanding of your finance options will put you in a better position to make educated choices. Equipment leasing comes under the broader umbrella of debt financing, which can include finance from banks, alternative lenders or even vendor finance through your franchisor. While some franchisees expect to access debt finance for 100 per cent of their business, this will very rarely get approved. Debt financing is a great tool to be used in lieu of capital to fund expensive elements such as equipment and fitout, not as your only source of funds.
RETAIN YOUR HARD-EARNED CAPITAL
One clear benefit to leasing your new equipment is that you are able to retain your hard-earned capital. Working capital plays a crucial role in the sustainability and success of a business, and the opportunity to have more of it on hand will be a blessing, particularly during start-up or expansion phases. Purchasing equipment outright draws vital capital away from other facets of the business; whereas leasing solutions allow you to take these funds and invest them into business development activities, such as local area marketing, which have a significant impact on the longevity and success of your business.
MINIMISE ASSET RISK
An important consideration when purchasing any piece of equipment is the concept of asset risk. Over a long period of wear and tear, the cost of equipment maintenance and repair becomes significant. In addition to this you are also investing funds into a depreciating asset. Choosing to lease equipment allows you to replace it regularly, and not only lessens maintenance cost but allows you to refresh your business with the most up-to-date technology. Opting for a lease solution helps overcome concerns of asset depreciation and ultimately minimises asset risk.
TAKE ADVANTAGE OF EXPANSION
OPPORTUNITIES
Utilising external finance opens the door for many opportunities, one of which is the ability to expand into becoming a multi-site operation. Relying solely on working capital to fund your business can place limits on your ability to invest in growth opportunities, delaying the potential expansion timeline of your business. Starting a relationship with an equipment finance lender will allow you to gain quick access to funds when an opportunity arises, allowing you to take action without impacting your levels of working capital.
PREPARE FOR THE APPLICATION PROCESS
In order to have a successful finance application, it is important to understand what lenders will want to see. Ultimately you want to show a lender that your business is viable and reinforce how you will meet repayments. Most lenders will want to see the basics such as a completed application form and ID, but will likely also request a business plan, asset and liability statement, financial projections, commitment schedule and personal or company tax returns. To put your best foot forward, you should have all of these documents prepared and ready to ensure a smooth and timely application process.
BEWARE OF FINANCE TRAPS
Finally, be smart when choosing a lender. Signing up for a finance contract you don’t fully understand can be costly in the long run. Be sure to read the terms and conditions and seek advice if there is anything you don’t understand. Also be on the lookout for common “traps” such as contracts without a fixed term, repayment-free periods or confusing payout calculations, which are not always what they seem at face value.