Astute Financial Managers have a saying: ‘Buy what appreciates, lease what depreciates’
They recognise the financial benefits that accrue from readily-available working capital; a return of circa 15% on available working capital delivers much more value than spending the cash on fixed assets.
With businesses under increasing pressure to deliver working environments that will attract and retain the best people - their most productive working asset – finance leasing can allow them to have the office they need now, spreading the cost over 3-5 years.
Interion’s leasing partner Bluestone Leasing can typically deliver an illustration in 24 hours and has an acceptance rate over 90%. Potentially they can cover the cost of fitting-out as well as furniture.
There has never been a better time to invest in your people and your future – contact us to find out how much you can spend and receive a detailed illustration.
Reasons to lease:
· Tax Savings: Many private organisations stand to benefit from significant tax benefits as finance lease payments are 100% tax deductible unlike typically using cash.
· Enables Budgets: Budget holders get to make investment decisions based upon their needs and stakeholder returns; they are not compromised by limitations on available capital budgets.
· Low, Fixed Costs: Small, regular payments that don’t change, regardless of any changes to interest rates, allows easy budgeting throughout the term.
· Make Capital Work: Don’t sink valuable cash into depreciating assets, deploy it elsewhere for higher returns.
· Spread Risk: Spread VAT: the cost of the VAT is paid in instalments rather than as a lump sum up-front (excluding Hire/Lease Purchase agreements).
· Turnkey Solution: Customers can build all their costs into the agreement (not just the assets) to maximise their benefits even further and help towards their dream bespoke project.
Illustration – 5-year term
More details – Why use Asset Finance?
This might be the question you ask yourself if you’ve never used any form of asset finance before or,
perhaps, if you are examining your options prior to making a new investment.
The motivations vary depending on a host of factors including, but not limited to, the type of organisation you are, your financial position, your available capital (and broader demands
on it) and your future plans.
These are the main drivers:
Probably one of the most misunderstood reasons but certainly one of the most popular. In essence, during the term of a finance lease, technically, the lender owns the asset. It is this feature of a finance lease that allows all of the repayments (both the capital and the interest) to be treated as fully (100%) tax deductible. Equivalent cash purchases typically only deliver partial tax relief through the system of capital allowances and, where they qualify, enhanced capital allowances (ECA). This can be a game changer for profitable, private companies subject to corporation tax or income tax as in the case of partnerships and sole traders.
The equation has become somewhat more nuanced over recent years after the introduction of the Annual Investment Allowance (AIA) in 2008 which, subject to certain caveats, does provide businesses with the equivalent of 100% tax relief on qualifying investments up to a set
threshold each year, even when using capital. That said, as many costs in a project simply don’t qualify for AIA and/or the business has used up its allowance for the year elsewhere, finance remains a great way to maximise tax efficiency for many companies.
Whatever the size or shape of your organisation and project, undoubtedly when you do look to invest, you will be forced to consider available budget. Budgets are there for a reason of course and living within your means is as powerful a philosophy in business as it is in life. That said, budgets can be artificially restrictive and potentially quite damaging to the aspirations of any organisation.
Traditionally there are only three solutions when what you want to achieve doesn’t quite
match your available budget.
(i) Lower your aim
Trim down your requirements to match your available capital. The result can often mean
compromising on the scope, quality and, ultimately, the outcome of your project.
(ii) Deliver it piecemeal
Do what you can now and wait until your next budget or when you have more budget
available to do the rest.
(iii) Scrap it
Don’t go ahead at all. For some projects this is the only way forward as they can’t be
massaged to fit into a smaller pot.
Using finance allows you to spread your costs over the useful life of the assets you are investing in. The demands on budget fall away (for many this turns a capital expense into an operating one) and with low, fixed payments you can deliver the project you want, without compromise, and one that maximises the benefits for all your stakeholders.
3. Spreading Costs
It is a sad fact that the assets you are buying will depreciate from day one. What’s more, in most cases, they will only return value over time too.
When you consider that using capital sees you paying upfront and in full, it is not surprising that many businesses are switching on to the idea of spreading their costs in line with the return on investment over time.
Over recent years, the concept of treating your fit out and furniture “as a service” has become much more popular. This is essentially what a finance agreement gives you - the ability to spread your costs over time as you ‘use’ the assets.
4. Strategic Choice
This ability to spread costs over time offers several strategic and asset lifecycle benefits above and beyond using capital. Often in business we ‘sweat’ an asset for as long as we can – eking every last drop of value out of it until, usually, it either fails or becomes too costly. We are then faced with having to spend a significant amount (often that we have not budgeted for) typically in a hurry so that our business is not affected.
Asset finance takes the pain of that experience away and ensures that your organisation always has the latest technology, equipment, infrastructure or environment to give you an edge in your market. For a fixed, low amount each month you never have to face large spikes in demands on cash flow again or face the prospect of limping along with creaky old equipment or a tired old office space. Once the agreement comes to an end, you simply enter into a new agreement for brand new assets and the cycle repeats itself.
5. Opportunity Cost
Sinking capital into assets that depreciate from day one and only return value over time is very much questionable when it comes to determining the best use for your cash. The cash deployed is locked away and unavailable for other uses. A good proportion of asset finance users are large, profitable and cash-rich organisations.
Unlike those that need finance because they don’t have the available capital, these businesses have strong financials and attract the best rates and commercial terms. Furthermore, they recognise that they can make their cash reserves work harder for them by deploying their capital where it will make greater returns.
Their finance teams understand the importance of Return on Capital Employed (ROCE) and so freeing up capital to be put to work generating greater profitability can be highly beneficial for them.
The impact of VAT, particularly for larger interior projects, can be a serious consideration with regards to cashflow. Although most will be able to reclaim the VAT, depending on the timing of the project, businesses may face up to three months exposure until they complete their next VAT return. The situation is even more acute for organisations such as charities, which are unable to reclaim VAT at all.
Most forms of leasing (excluding Hire Purchase) allow the VAT to be spread throughout the entire term of the agreement with the VAT due only on the amount of each repayment. This helps cashflow for all but is particularly powerful for those who cannot reclaim VAT, softening the impact for any large project they are considering.