To buy or leasethat's the question

I N THE current economic climate, I many dealers are faced with the dilemma of needing to replace or update aging lift trucks without eroding capital.

Buying new equipment will improve efliciency and ultimately increase productivity and profits, but the investment will tie up funds needed for other expenses. However, leasing is one way to conserve capital while still gaining the benel'its of adding new equipment.

A number of new financial options are available. Flexible leasing agreements allow companies to use the latest equipment while conserving cash and obtaining tax benefits.

('ompanies often choose to lease for:

(l) l-easing olTers tax advantages through acceleration of deductions. investment titx credits and asset writedowns.

Ql Leasing conserves capital, eliminating cash outlays.

(3) Leasing may generate replacement of equiPment to nraintain productivity.

(4) Leasing aids lorecasting operational costs.

Leasing Options Worksheet

Situation: Solution: Benefits:

Want to maximize cash tlow May want to upgrade cqurpmenl later.

Looking to purchase, but seeking alternative fi nancing.

Looking to purchase but want low monthly payments.

Seasonal operation creates "feast or famine" cash flow.

Looking to maintain consistent level ol cash flow to cover equipment and maintenance for long-term.

Purchase Option Leasc Low monthly payments. Option available to purchase equipment at pre-designated price, or can changc equipmenl.

$l Buv-out Leasc Provides alternative source of financing. Equipment is bouSht for $l at end of leasc.

Balloon Lease Determined Value Lease Provides lower monthly payment with a hiSher prearranged guaranteed purchase orice at end of lease.

Skip Payment Lease Payments are made during busy season when there is strong cash flow, no payments due during "off-season "

Accelerated Paymcnt kogram Lease

Not looking to own equipmenl. Operating Lease (True rental)

Decreasing payments allow principal balance to be paid faster. Actual operating costs are keot soble.

Expense monthly payments as operating costs. pre-tax expense. Not showing ownership of equip rnent on books.

Source: Hyster Company

It is inrportant lbr businesses to understand the dill'erent types of leases in order to maximize the advantages. llasically there are two types ol' leases: an operating lease and a capital lease.

An operating lease is typically a conventional rental contract. The lessee pays a flat I'ee for the use of the equipment. After the lease expires, the lessee returns the equipment to the lessor.

The capital lease is used by companies wanting to own the equiPment at the end of the financial contract. Unlike a "borrow-to-buy" agreement, which requires a sizable down payment, a capital lease usually has a lump sum payment at the end ol the lease.

The llve most popular types of capital leasing options are: purchase option, $ I buy-out, balloon, skip payment and accelerated payntent.

Story at a Glance

How to rcplace aglng handling equlpment wlthout spending capi&al . . . buy/ lease options benefits of each.

The accompanying chart provides an overview of each type of leasing agreement and how it can help solve specific problems.

Whether a company has one, or 100 pieces of equipment, managers should carel-ully consider whether to buy or lease the next one.

The decision depends upon each individual situation. Although the trend is toward leasing, a company must consult with its accountants and dealer for the right financial plan and equipment. Ultimately, the most successful companies will be the ones that use their capital most effectively.