While the concept of leasing equipment for cleaning is relatively new in our industry, it has been in use outside the cleaning industry for years. If you have never leased equipment, there are a number of solid financial reasons that deserve consideration.
Before entering into a lease, you should work with a tax professional just like you would with any financial decision. Your local tax professional will be able to help you determine which lease is right for you, how leasing will affect your business, and how your city, county, and state treat the buy-out options on a lease, as they differ from area to area.
Of all the benefits that leasing provides, one of the most important is that it has great tax advantages. Under section 179 of the IRS tax code, businesses are allowed to deduct the total cost of capital equipment that is purchased or leased through December 31, 2011 up to $500,000 instead of amortizing the cost out over five years.
Under the Tax Relief Act of 2010 the IRS will allow an additional bonus depreciation of 100 percent of the purchase price up to $500,000. This means that you can deduct double the amount of the purchase on your taxes this year, which could be very beneficial for tax planning purposes. Before making any purchase, please check with your tax advisor on the section 179 rules and any updates.
Another benefit to leasing is that it allows you to hold onto your cash reserves while acquiring the equipment you need to grow your business. Leasing will allow you to budget and pay for the equipment in manageable monthly payments. You will pay more over the term of the loan than you would if you just purchased the equipment outright. However, a lease does not affect your bank line of credit, while still allowing you to have cash to run your business.
Keeping your equipment fleet from obsolescence is another advantage leasing provides. Because a lease is a budgeted monthly amount, purchasing new equipment once a lease is over is much simpler. For example, if you just finished the lease for a scrubber that cost $400 a month and now you need two walk-behind extractors that will cost $450 a month on a lease, you do not have to find $450 per month in your budget, all you have to find is $50 per month.
Leasing actually allows you to maintain a much younger fleet of equipment and allows you more flexibility as new innovations are introduced. One final tip regarding fleet obsolescence is to lease for a 36-month term so that the term of the lease coincides with the typical warranty from the manufacturer.
When you are deciding what piece of equipment to purchase, work with your supplier to create a return on investment (ROI) proposal for any piece of equipment that you consider. A ROI proposal will show you how much you will save in labor hours based on the increased productivity of a new piece of equipment.
Consider this example: XYZ Company wants to purchase a new scrubber that will cost $12,000. Based on today’s average leasing rates, this scrubber will cost about $400 a month on a 36-month lease. They are currently scrubbing 60,000 square feet of space five days a week, 52 weeks a year. Their current scrubber has an actual productivity rate of 15,000 square feet per hour, which means it takes four hours to scrub the area every day. The proposed scrubber has an actual productivity rate of 24,000 square feet per hour, which means it would take 2.5 hours to scrub the area every day. They pay the person operating the scrubber $15 per hour, including benefits.
By leasing the new scrubber for $400 a month, they will increase their productivity 60 percent. This means they will save 1.5 hours every day, which translates into $22.50 a day, or $450 a month. Therefore, the labor savings of a new piece of equipment pays for the cost of the lease.
The labor hours saved through the increase in productivity can then be put to use to do other tasks that you currently may not able to get to. The ultimate goal of a program like this should be two-fold— to justify the upgrade in equipment by becoming more productive while simultaneously raising the level of clean in your facility by freeing up labor hours.
Provided by Windsor Industries