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It’s a question almost every business owner confronts at one time or another: Does it make more sense to buy or lease your next piece of business equipment, vehicle, or facility? It’s a tough question because the answer is almost always, “It depends.” Both options offer various advantages, depending on your particular business situation.


In general, leasing is often the better option for a business with limited capital or that needs equipment which must be upgraded or updated frequently. An established business with substantial assets and a solid credit rating may be better served by buying, especially equipment that has a long, usable life.“Since our business is more labor-intensive than capital intensive, it relies more on infrastructure than production machinery or research equipment,” says Michael Mandala, CEO of BlueHill Strategic Relations. While his company does purchase some business assets outright, he’s opted to lease the backbone of its infrastructure—computers, telephony, copy machines, other office equipment—for financial reasons. “Leasing lets us deduct the cost from our top line and reduces our tax burden. If we purchased our equipment, we’d have to amortize our costs over several years.”


There are other advantages that make leasing especially attractive to early-stage and smaller businesses, says S.E. Day, a business and consumer finance advocate, host of the Legally Steal show, and author of Mastering the Business Credit Maze. These can include lower monthly payments, since you are simply renting a percentage of the equipment’s total value; conservation of capital, since down payments of 20 percent or more are often required when purchasing; and buy-out options, which are frequently offered on leased equipment and may allow you to acquire it at an attractive price at lease end.


Buying offers a different set of rewards, an obvious one being ownership. That’s a particularly significant advantage when the item being acquired is projected to have a long, useful life and is unlikely to become technologically outdated in the near future. “Purchasing increases the asset side of a smaller business’s balance sheet,” Mandala says. “That does wonders for us and 52 million other small and midsized businesses here in the U.S. by helping us establish an asset base that we have the potential to borrow against in the future for capital to expand our enterprise. In the current lending atmosphere, it is very hard for businesses with less than $10 million in revenue to obtain a meaningful loan. Lenders want to see collateral to help mitigate their risk.”


Day says the most important factors for businesses in the $100,000 to $1 million annual revenue range to consider in making the buy vs. lease decision are the length of time the equipment will serve its intended purpose before having to be upgraded; whether a lease is open-end (requiring the lessee to purchase the equipment at the end of the lease) or closed-end (no purchase requirement); and the type and use of the equipment being considered. Mandala stresses the importance of weighing the decision’s potential impact on cash flow. “Often, that’s more important than looking at what a purchase might add to the asset side of your balance sheet,” he says.


In some cases, a combination of buying and leasing is the best solution, and that’s just what Day does in his business, which requires travel with camera and computer equipment. “Buying the vehicle makes sense because of the high mileage and heavy usage, while leasing the camera and computer equipment gives me the most affordable access to updated technology.”


At the outset, be sure to consider all the potential impacts the buy-vs.-lease decision is likely to have on your business, and tap into whatever expert advice is available to you, such as your banker and accountant. They can help you decide whether the cash flow advantage and improved access to upgraded equipment that leasing often provides are more important to your business than the boost to your balance sheet that purchasing might deliver.

Article provided by Inc. ©Inc.

AccountingMistakes_Body.jpgby Susan Caminiti.


For most entrepreneurs, the first few years of a newly minted business are a mixture of excitement and fear. You’re on your own, doing what you love. But you’re also running an enterprise that requires a fair degree of financial know-how and bookkeeping discipline in order to stay afloat and grow.


Establishing—and following through with—good accounting and financial controls from the beginning is essential to creating a solid foundation for any small business, say the experts. We spoke with a few of them to identify some of the most common accounting mistakes—and how to avoid them.


1. Setting up the books incorrectly

Installing accounting software, such as QuickBooks, is a common first step for many small business owners when it comes time to set up their finances. But when it’s done incorrectly, the problems just multiply.


“I think QuickBooks is great and it has many of the features that a small business owner needs,” says Brian Germer, a CPA and partner with Parsons & Germer, an accounting firm based in Portland, Oregon. “But when numbers are entered incorrectly or a payment date is not right, you can wind up showing a negative balance and that throws everything off.”


If you’re not comfortable with setting up your accounting software in the beginning, hire someone to do it for you. “It’s money well spent,” says Christopher Gamble, a CPA and partner with Kroner Gamble & Co. based in Rochester, New York. “I’ve seen clients who have mixed income and expenses into one category and it’s a nightmare. If the categories and the data aren’t correct, there are going to be endless and costly mistakes.”


2. Not reconciling accounts each month

Whether you get your bank statements electronically or on paper, they can’t be ignored, or put off until you have more time.


“One of the biggest mistakes I see is when a business owner waits several months, or even until the end of the year to reconcile their bank statements with what they’ve put into their own systems,” says Gamble. If you’ve made an error in entering a bill or payment, or the bank has recorded a check amount incorrectly, the inconsistency can wreck havoc on your books if left unattended, he says.


Pamela Etzin, owner of An Eye for Detail, a wardrobe styling and consulting firm based in northern New Jersey, says she knew early on that bookkeeping was not her strong suit. “When it comes to my clients, their needs, and responding to them, I am prompt and conscientious,” she says. “But I just didn’t keep up with my bookkeeping and I knew that was going to be a problem as the business started to grow.”


To avoid that hazard, Etzin hired a part-time bookkeeper to stay on top of bills, taxes, and invoices for clients. “I am a big believer in seeking out the experts in any field and the money I’m spending is well worth it,” she adds.


AccountingMistakes_PQ.jpg3. A mismatch between payables and receivables

You didn’t get into your own business to become a bank for your customers. But that’s exactly what you’re doing if there’s a significant gap between the payment terms your vendors give you and the terms you offer your customers, says CPA Sarah Krom with accounting firm SKC & Co.


“I’ve seem small business owners want to pay off every bill as soon as it comes in because they don’t want to owe money,” says Krom. “If you do that, but your own customers have 30 or 45 days to pay you, you’re essentially financing your customers.”


A better strategy is to compare the terms you have with your vendors and the payment terms you give clients in order to see if they match. If they don’t—and you can’t or don’t want to renegotiate either side—consider speaking to your bank about opening a working line of credit, suggests Krom.“This allows you to bridge that gap between the time you have to pay bills and when you’re getting paid and helps further establish your credit worthiness as you pay it back each month,” she says. Of course, the best time to apply for a line of credit is when you don’t need it, Krom adds, so don’t wait until you’re in a financial bind before having the conversation with your banker.


4. Financial controls given to one person

The financial cycle for any small business begins with the person who opens the mail and records the bills and checks coming in. That same person shouldn’t be the one to authorize or sign checks or make deposits, cautions Gamble.


“There needs to be a proper separation of duties for financial control so that you don’t wind up in situation where someone could potentially steal from you,” he explains. Hiring a bookkeeper or even a part-time CFO as the company grows, does not mean that an owner shouldn’t have a hand on the financial controls as well.


“Ideally, the owner should be the one signing the checks or at the very least, authorizing someone else to sign them but only after understanding what the money is for,” Gamble says.


Running and growing a business is a marathon, not a sprint. Don’t let simple accounting mistakes become the stumbling blocks along that journey.


Disclaimer: Since the details of your situation are unique, you should always seek the services of a qualified CPA or other financial professional.

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