Leasing: Protect your greatest asset

Tuesday, November 23, 2010

Q. Why are leasing companies looking beyond the numbers?

A. The numbers on financial statements only begin to tell part of the story of a business. The balance sheet and income statement provide a lender with only one day of historical data. A leasing company must analyze the past and predict the future health of a provider. It must analyze how efficient, profitable, leveraged and liquid a provider and its operations are.

A leasing company digs deeper into the numbers and calculates ratios and trends, and analyzes where a provider is headed regarding growth and profitability. Trends help a leasing company determine whether a provider is improving and how it stacks up against industry norms. It determines if the provider will have the financial strength, through its cash flow, to meet future obligations.

In today's environment, there's a shared responsibility between the lending company and the provider to understand the business dynamics. Providers need to understand what a leasing company is looking at; the strengths and weaknesses associated with their financial statements; and the competitive advantage they can create based on their numbers.

This isn't something to be taken lightly: Leasing provides a lifeline for an injection of capital. Timely financing provides needed equipment to service existing and new contracts or customers. Financing improves cash flow, matching reimbursement with revenue received from equipment. Financing can also strengthen vendor relationships when providers do things like make timely payments for equipment purchases.

Do this and you will protect your greatest asset: your business.

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