Signs of the Times - April 2013 - (Page 106)

LEASING 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 equipment. High-dollar managers’ strategicequipment purchases top signshop 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 machine-production promises, anyone can see why the study of equipment purchases – and honesty 106 SIGNS OF THE TIMES / APRIL 2013 / in marketing, advertising and sales by machine manufacturers – is critically important to the business world. Lease types 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 accounting system. 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
ST Update
Cut Your Ink Costs
Technology Update
Vinyl Apps
Strictly Electric
LED Update
Software Update
Technology Review
Technology Review
Sign Museum News
New Products
The 2013 International Sign Contest
Leasing Equipment
The ISA Sign Expo 2013 Preview
Industry News
Advertising Index
Editorially Speaking

Signs of the Times - April 2013