It's USE of IT, not ownership that creates profit
18.03.2002 - Published by: Entrepreneur Magazine

When Kai Adams opened Sebago Brewing Co two years ago, he leased £60,000 worth of computers for the brewery and restaurant's point-of-sale system. Now that the 95-employee company is opening its third location, Kai Adams is opting to lease even more of the equipment necessary to get up and running. "Now is a good time to be doing that," Adams says. "We don't have to buy all this equipment, so it frees up some cash for us." Adams bases his decision, in part, on some of the perennial advantages of equipment leasing, namely, lower upfront case outlay and the ability to offload maintenance and disposal tasks onto the lessor.

A lot of other entrepreneurs agree. According to a 2001 survey of small businesses conducted for Entrepreneur by the Equipment Leasing Association (ELA), 70 percent of owners expect business to slow, and most of those expect to increase use of leasing to help deal with the slump. Experts agree that leasing makes more sense for entrepreneurs right now, for one thing, during downturns, tightening credit standards at traditional lenders tend to steer small firms to seek financing from leasing companies. Lower leasing costs also matter. Leasing is generally more costly than buying - although every lease is different, and it takes a cash-flow analysis looking at depreciation, maintenance and disposal to accurately compare leasing with borrowing or paying cash to purchase equipment.

Uncertainty is also a factor, never more so than today. "It's a better time to lease now than in good times," says Jay Fudemberg, CEO of Pure Markets Corp., a provider of online markets and tools "Your revenues and earnings are probably down and you want to preserve cash. A lease allows you to obtain something you need without a large capital outlay and without the risk of not being be able to return it if you don't want to continue to own it."

Business owners need to remember that it's usage of IT - not ownership of a rapidly depreciating asset - that generates results.