The economy is improving and your business has been picking up for a few months now. It seems like it is more than a cycle, it’s a trend! The government has made it clear, through HR 4853, (Tax incentives & Business Depreciation) that the time to invest is now. You have decided that this is the year that you are going to invest in capital equipment for your business. Now what?
You have been diligently looking at and evaluating solutions from the various vendors and you have it narrowed down to the precious two or three alternatives. Before you make that final decision to sign the contracts, you need to address your acquisition method. Should you buy or lease from the vendor? What type of lease will work best? Should you seek financing from your bank? What are the tax ramifications? Etc.
The first step should be to talk with your tax advisor. Understand how HR 4853 will affect your situation. Find out what the requirements are in order to take advantage of and to leverage the depreciation and tax incentives. He or she should be able to advise you on what the best decision could be on the various options.
Secondly, what type of options does the vendor provide? If you elect to purchase do you get a promotional discount or does the discounting only apply to leasing? What impact would a purchase have on the level of support on the solution? Do you need to secure support at an added cost? What about the different maintenance offerings? Does the pricing change if you lease vs. buy? There are numerous conditions and options depending on the vendor and the acquisition method. You need to be sure that you get all these questions clarified, in writing, before moving forward. If you decide to lease make sure that the vendor maintains the paper on the solution. Many vendors will say that they offer financing but it is actually through a 3rd party vendor. If possible, select a vendor that actually finances your solution as technology changes rapidly and if needed, you can move to the new technology without being stuck. You also have some recourse if the vendor isn’t meeting their commitment in level of service or capabilities promised.
The third option is to use your local lender or bank. If this is an option that you are considering, start the process early on. Treat your lender as a partner and if you haven’t already, build a solid relationship with them. Make sure that your lender understands your environment and the business climate that you are in. Educate the lender about your business. Help them to understand the specifics of your business; your cash flow, your customers, your opportunities. Let them know your successes, your knowledge of the market and the industry. Make sure that your business plan is solid and that it includes the financial highlights of your planned expenditures. Finally, be upfront with them and be as transparent as possible. The last thing you want in the underwriting stage is any surprises.
Whether you purchase or lease, the key to successfully taking advantage of your investment dollars is to do your homework. While every situation is unique, if you know the options available and focus on the items discussed, you can take some of the stress out of a major investment in your business.