By Jonathan Goldberg, CEO of Preference Capital
Given the challenging economic climate, local companies should consider the advantages of leasing their assets. While many decision-makers are still of the opinion that buying them outright is the way to go, the digital world has seen a groundswell of support for a different way of managing assets.
An asset can be broadly defined as a resource that can generate future value for a business. But how much of the equipment and other items companies are so keen on purchasing can truly be considered beneficial for the organisation?
After all, if you are in manufacturing and have several warehouses do you really need to own the machines used to clean your floors? Just consider the ‘hidden’ expenses of doing so – there is ongoing maintenance that must be done; it needs to be insured; if it breaks down the organisation must spend money to have it repaired while not having a replacement product to do its job; the list goes on.
Simply put, if something is not capable of adding economic value for the business, then there is no benefit to owning it.
Another example is buying a delivery bike or vehicle for your company. It does not make sense when one factors in the expenses of servicing the vehicles, safeguarding it against theft, and even mitigating against the risk of abuse by your employees.
Instead, companies should embrace the concept of leasing as this will provide piece of mind while allowing management to concentrate on their core business. In addition leasing can be more cost effective over the life of the equipment.
While this is certainly not a new idea, it has been predominantly driven by the IT market. And yet, its benefits can permeate virtually every facet of business irrespective of the industry it is in. The reason why it has always been a popular choice in technology, is that leasing enables the company to automatically upgrade the hardware when newer innovations become available. In laymen’s terms this is akin to having a cell phone contract where your device is upgraded every two years.
Fortunately, the market has come a long way in terms of how leasing is viewed especially from small to medium enterprises. Renting equipment is a far better option that enables the company to keep its resources for something more strategic. It could be as simplistic as building up a reserve when business slows down or looking at an acquisition. Regardless, funds should be used for strategic imperatives and not for buying equipment when it does not make sense to do so.
While South Africa is still lagging in this regard when compared to countries like the United States, changes are happening. Thanks to the arrival of cloud computing, people have gotten used to thinking differently about ownership.
An example of this can be found on our devices, whether that is a laptop or a mobile phone. Thanks to our connectedness, most (if not all) our data is stored online. Accessing it on a new device is as easy as logging in with your credentials and having it synchronise to the cloud.
In my next blog, I will examine the tax and cost implications of asset finance and how it delivers a demonstratable business return as companies move from a Capex approach to an Opex one.