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2015

Rising confidence is sparking a rise in equipment investment. Leasing may be one way to keep your company’s growth goals on track.

 

Leasing the equipment your business needs can be a strategy for managing your company’s cash flow and reserving its liquid assets for other areas of investment designed to hit your expansion and growth targets. To make the most of this resource, you need to understand current funding options and trends so that you can determine why and when leasing makes sense for your small business.

 

According to a forecast by the Equipment Leasing and Financing Association, “U.S. businesses, nonprofits and government agencies will spend nearly $1.5 trillion in capital goods or fixed business investment (including software) this year.” That figure represents an all-time high, and the majority of those assets will be acquired through financing, ELFA predicts. The association adds that this uptick in activity will reflect companies’ moves not only to replace older equipment, but to “aid in expansion” as “capacity utilization rates in some industries reach or surpass levels historically known to spur business investment.”

 

A more competitive cash flow strategy

William G. Sutton, CAE, ELFA’s President and CEO, notes that leasing can be particularly beneficial for you as a small business owner if your funding options for large purchases are limited. “The ability to make monthly payments, rather than large cash outlays up front, is a key benefit that can help small businesses maintain cash flow and greater certainty in budgeting,” he says. “One of many benefits is that small businesses can often acquire more and better equipment than they could have without financing—including the latest technology to remain competitive and meet their clients’ needs.”

 

In the short term, this approach can leave your cash reserves available to invest in research and development, marketing, and increased staffing or outsourcing that may be required to optimize your expansion and growth.

 

A secondary and longer-term advantage is that leasing can help you to strengthen your company’s credit position and establish the credit record that you’ll need to borrow for future growth. This can be particularly valuable if you’re a sole proprietor or owner of very small companies and are still in the process of building a credit history for the business that is independent of your personal credit record.

 

More trends to watch this year

ELFA is monitoring ten major equipment leasing trends for 2015. Visit ELFA’s Equipment Financing Advantage website to access an article and infographic about the top ten equipment acquisition trends of 2015 and its Ten Questions to Ask reference, which is designed to help map your company’s equipment leasing strategy.

 

Among its forecasts:

 

•    Improving market conditions will continue to increase credit supply and demand for equipment acquisitions.

•    Eyes will be on short-term interest rate increases.

•    Advances in the use of technology will drive innovative financing options.

 

In addition, the association is following economic "wild cards" that could have an impact on equipment acquisition decisions. On one hand, it is possible that global economic weakness could spark caution about business investment; on the other, “GDP growth from low oil prices, a potential surge in the housing sector and sufficient capacity utilization could have firms ramping up capital expenditures.”

 

 

Bank of America, N.A. engages with Inc.to provide informational materials for your discussion or review purposes only. Inc. is a registered trademark, used pursuant to license. The third parties within articles are used under license from Inc. Consult your competent financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

 


There are all sorts of ways that business owners measure success. It could be the number of units sold, the amount of seed capital raised, increases in website traffic, more conversions, increased buzz about their business, or any other number of things.

 

In the end, there is only one real measure for success in for-profit businesses: profit. After all, if you don’t make a profit, no other metrics matter. Profit is a simple concept in theory – it is nothing more than the difference between your wholesale costs and your retail revenue. However, there is nothing simple about it.

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More specifically, the variance between what it costs you to buy or make a product and what you can eventually sell it for is called your profit margin. Ideally, that will be a fairly big number, expressed as a percentage. For instance, if you can buy a widget for $3 and sell it for $5, your profit margin is a healthy 40% (you make $2 on every $5 sale, 2/5 = 40%).

 

Some businesses, like restaurants or discounters for instance, typically have a very low profit margin (in the single digits). They make up for a low margin with volume sales. Other businesses sell less, but at a greater margin. Either way, the question almost all small business owners have, whatever their margin may be, is how can they increase their profits?

 

Here are three ways to increase your profits. They are:

 

1. Increase your prices: No, you probably don’t want to raise your prices, but take a look at the big picture: People are your customers for all sorts of reasons. There are things you do as well, or better, than your competitors. It might be your:

 

  • Location
  • Prices
  • Products
  • Value
  • Convenience
  • Selection
  • Expertise
  • Reputation

 

You will notice that price is only one of many different things mentioned in this list. The reason is because, unless your essential value proposition is that you are the least expensive (which is unlikely), then people choose your business for many reasons, price being just one.

 

Overall, while no one likes raising prices, and the fear of losing customers as a result of a price hike is a legitimate concern, it is equally true that all businesses raise prices. Consider this: When was the last time you stopped patronizing a business simply because they increased their prices? Right, that doesn’t happen very often.

 

Click here to read more articles from small business expert Steve Strauss

 

So, if you want to make more money, and especially if you want to increase your profit margin, then consider charging more for your products or services. If you are still worried that it will turn-off your customers, test the new prices first before rolling them out across the board.

 

Celebrate-Article-Vert.gif2. Sell more: If you don’t want to increase your prices but still want to increase your profits, then your second option is simply to sell more. Selling more means you will make more. Yes, this is self-evident, but it is also a fact.

 

One way to do this is to do an 80-20 analysis. The 80-20 Rule states that 80% of your profit (or sales) come from 20% of your products or from the top 20% of your customers. So the question to answer is this: What are your top 20% products? Who are your top 20% customers? That small percentage of products and customers account for the vast majority of your sales.

 

Once you know the answer to that, then the path to more sales should be evident: Concentrate on those sorts of valuable products, find more of that type of customer, and you will make more sales that will make you more money.

 

3. Decrease your overhead: Think again about that profit equation I mentioned earlier: Profit is the difference between costs and sales. The first two ways to increase profit have to do with increasing sales. The other way relates to the first part of that equation – decreasing your costs. Selling the same amount at lower costs yields increased profits.

 

The challenge is figuring what to cut, and then how to cut it in such a way that it doesn’t eat into sales. Cutting overhead must be done with a scalpel and not a cleaver. Be judicious. See if you can find a cheaper supplier, or if you can reduce labor or insurance costs. Buy in bulk. Give employees an incentive for keeping costs down.

 

Increasing your profit is certainly possible, but it will require keeping close tabs on your margins and finding ways to alter the profit equation to your advantage.


About Steve Strauss

Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest,The Small Business Bible, now out in a completely updated third edition. You can listen to his weekly podcast, Small Business Success, visit his new website TheSelfEmployed, and follow him on Twitter. © Steven D. Strauss.

You can read more articles from Steve Strauss by clicking here


Bank of America, N.A. engages with Steven A. Strauss to provide informational materials for your discussion or review purposes only. Steven A. Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steven A. Strauss. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

Video Replay of the Live Google Hangout: Tips for Small Businesses During Tax Season

 

 

The panel discusses strategies small business owners can keep in mind all year long to ease the burden during the April crunch time.  Topics include advice for surviving tax season, organizational tips and recent tax changes to be aware of.

 

The panel is moderated by Carol Roth and you will hear from:

  • David Solis, National Sales Executive, Bank of America Small Business
  • Ebong Eka, CPA and Small Business Expert
  • Steve Strauss, Small Business Columnist, USA Today

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