Signs of the Times - April 2013 - (Page 106)
It has advantages, but understand your contract
before you sign.
By Darek Johnson
Equipment leases vary. At its
core, a lease is a type of financing
agreement that allows you certain
advantages over a purchase agreement; the first is to acquire more
and/or better equipment with little
or no down payment. Another may
be to tax expense the lease payment.
Still another is to use a lease to
acquire machinery while conserving
your shop’s operating capital.
Leases come with certain hazards.
Most notable may be within the
contract itself because leasing
contracts are more complicated
than you might first expect. Keep
in mind, also, that the leasing
company (lessor) retains ownership
of the leased item and expects it to
be honored, well maintained and
in like-new condition at lease end.
Recognize also, that the lease owner
is seldom the machine manufacturer.
Further, your contract may treat
early cancellation severely; and,
don’t even dream of modifying the
High-dollar managers’ strategicequipment purchases
planning list because top-dollar
gear, especially if its task is to
produce saleable products – or to
assist in the revenue-producing line
– must contribute to shop income
as quickly as possible and, over
time, earn back its cost. In equipment-buying circles, return-oninvestment (ROI) and profit are
the key decision words, and three
specific headlines should crown any
high-dollar decision/purchase list:
Need – The shop needs income,
additional income or a device that
aids in producing income;
Available funds – Or, access to
such funds that allow you to buy
or lease new gear.
Return on investment (ROI) –
aka, revenue potential. The considered, new machine fabricates,
helps fabricate, or adds value to
fabricating machines to produce
ROI and profit income.
Each headlined category would
have dozens of actionable subheads,
but foremost is the sought-after
device must integrate into both the
signshop’s fabrication and marketing
chain. It must also do what the
seller promised it would do.
If the new machine fails to perform as intended, the cataclysmic
outcome becomes a blockade on
workflow, invested capital and ROI.
Countless secondary problems
follow: adjustments, tech service,
modifications, materials changes,
repair, discussions, arguments and
lawsuits come to mind. The final
action is the buyer’s settlement with
the equipment manufacturer.
It could take years.
No one wants that.
Meanwhile, the leaseholder
expects its payments on time. Therefore, because so much depends
upon a manager’s planned-asset
analysis and the manufacturer’s
anyone can see why the study of
equipment purchases – and honesty
106 SIGNS OF THE TIMES / APRIL 2013 / www.signweb.com
in marketing, advertising and sales
by machine manufacturers – is
critically important to the business
Lease companies commonly offer
three types of leases, although
numerous other types exist. The
prime three are an operating lease,
a direct-financing lease and a salestype lease; the definitions differ,
but only from the lessor’s perspective. Also, each has a different
From the lessee’s perspective, an
operating lease is a rental agreement,
and the payments are accounted as
a lease expense on the P & L sheet,
as are any associated direct costs.
Capital improvements – such as
modifying space, adding wiring
or ventilation – are depreciable
leasehold improvements and listed
on the balance sheet.
Both a direct-finance and a
sales-type lease are capital leases.
From the lessee’s perspective, there
is no accounting difference in either.
The lessee records an asset and
capital lease on the balance sheet,
but the asset is valued at the present
value of the minimum lease payments; the asset depreciation is
recorded on the P & L.
The lessee records lease payments in two parts – principal
against the capital lease on the
balance sheet and interest on the
P & L. Any capital improvements
are handled similarly.
As always, talk to your CPA.
Table of Contents for the Digital Edition of Signs of the Times - April 2013
Signs of the Times - April 2013
Cut Your Ink Costs
Sign Museum News
The 2013 International Sign Contest
The ISA Sign Expo 2013 Preview
Signs of the Times - April 2013