Leasing: Preserve your cash flow

Sunday, January 23, 2011

Q. Why is it important to match lease and asset?

A. New contracts, including competitive bidding contracts, require you to buy equipment. So what’s the smartest way to do that? Thankfully, there are still opportunities to flex your purchasing power.

One of the most beneficial ways to do this is to match the lease term with the reimbursement generated by the equipment. For example, you may need $50,000 worth of concentrators. You can cut a check for the entire amount on day one, or choose financing. Concentrators typically generate revenues for 36 months. A vendor may offer special financing for 12 months and a monthly payment of about $4,395. Or you could match the reimbursement and financing for the same term the equipment will generate income: 36 months with a monthly payment of $1,600. The reimbursement generated from the equipment will pay the monthly lease payment without squeezing your cash flow.

Another way to think about it: A business owner who does not hire an employee and pay a yearly salary in advance. He pays the salary weekly or bi-weekly to match the value that the employee adds to the company at the given time.

With too much short-term financing, companies struggle with cash flow and timely payments. Matching reimbursement with lease terms can assist with cash management. Preserving your cash flow will strengthen your purchasing power.

LeAnn Kelly is a sales manager, Home Care Division, for VGM Financial Services. Reach her at 800-532-6507 or lkelly@vgmfs.com.