It’s interesting that at a time when major corporations are sitting on mountains of cash, small- and medium-sized companies are scrambling to gain access to it. Corporate cash reserves are at an all-time high and will probably grow even larger because most financial managers continue to sit on the sidelines, waiting to see what happens to the overall economy. This tendency to hoard cash, while seemingly prudent, isn’t doing much to improve the economic outlook.
Regardless of the economy, however, life and business go on, and companies of all sizes are working hard to do more with less. In many cases, sales are down, profits are down, and credit can be harder to get.
The first step in dealing with this new economic reality is to adopt a corporate mindset that is focused on continuous improvement. The only way to do more with less is to improve how you use what you already have. It’s an ongoing process of reengineering and reinvention that aggressively seeks to streamline and refine every system and procedure a business uses.
In many cases, streamlining a business process to improve efficiency – and profitability – is simply a matter of reengineering how the process is actually executed. By redefining roles or reordering process steps, it is often possible to dramatically increase efficiency. What it takes is the motivation and patience to review all workflows, plus the knowledge and experience of how best to improve them.
Sometimes, more dramatic changes are necessary. As technology continues to advance in all areas of our lives, new equipment can often be deployed to exponentially improve business operations. Regardless of what industry a company serves, new technology and equipment is frequently a powerful solution that increases efficiency and reduces cost. This is why businesses must be willing and prepared to make ongoing investments in equipment and infrastructure to stay both competitive and profitable.
But what if your budget is tight and you don’t have the cash to invest? That is a problem that many companies can solve by leasing the needed equipment instead of dipping into cash reserves or tapping a line of credit. Leasing equipment solves these problems – and more – very effectively.
First, leasing conserves cash. Leases typically don’t require an upfront payment and are separate from any existing line of credit. A business only begins paying on the lease when they start using the equipment and deriving benefits from it. This results in operational flexibility because cash is freed up so it can be used whenever and wherever it’s needed, instead of being tied up in equipment.
This in turn improves overall liquidity, both on the company’s balance sheet and in the actual bank account. From an accounting perspective, a lease is treated much differently than if the business used cash to purchase an asset. Because leased capital assets are actually kept off the balance sheet, there are significant tax benefits as well.
Leasing also helps mitigate asset-related risk, such as technology obsolescence, since most leases include provisions for technology refresh. If leased equipment is superseded by new technology, the lessor simply turns in the old equipment for an upgrade.
The one thing that is certain is that the recent changes to the global business climate are permanent. It is a new reality: things will never be the same as they were before. Businesses have to adapt and adjust their processes and procedures to compete and succeed. Aside from process reengineering, the implementation of new equipment is often necessary to be able to do this effectively. And leasing this equipment, properly executed, can become a strategic advantage for businesses of any size.