For years, popular “money experts” have preached that you should “never buy with credit what you can buy with cash”. And while this is a nice sentiment, it is more of a ideal than an actual recommended business practice. Many of these experts have forgotten one of the most universal rules of business—that any debt, regardless of rate, is usually far cheaper than equity. Or put another way, that using someone else’s money to pay for something is generally more beneficial than using your own.
Here’s a few reasons why financing is better than paying with cash:
- Equipment depreciates rapidly. Spending capital on something that is going to be worth less with every day that passes means you are stuck with useless equipment the end of that equipment’s lifetime. Imagine you purchase a $50,000 asset that will be worth $35,000 in 3 years. If you paid cash, at the end of that period you’d have $50,000 equity in a $35,000 asset. Not a great investment. If you financed it, you’d only be paying for essentially what you have used of the asset, preserving capital and cash flows along way.
- Soft costs can add up fast. When purchasing a comprehensive equimpment solution, soft costs like labor, installation, and maintenance are often not included in the sale price, which means you’re outlaying more cash initially than you would if you had decided to pay monthly for the same equipment.
- Upgrading equipment often can be expensive when paying with cash. When you outgrow your equipment, the burden of finding a new solution falls on you – the owner – and the process begins all over again. When you finance equipment solutions, you can easily upgrade your equipment, often for the same monthly payment, and not have to worry about purchasing new equipment.
- It’s easier to budget when you have a monthly payment. Paying cash outright for an expensive solution can mean that your operating expenses for that month, or year, are totally used up. This leaves no room for emergency spending and often times can eat away at reserve funds. When you make monthly payments, you can allocate the money you had previously budgeted into the operating expenses you need to address the most.
When cash reserves are nearly always plentiful and abundant, paying cash may have some merit as a solution. But who lives there? In a rapidly evolving, equipment driven economy, being nimble and adaptable to the changing landscape is incredibly important. The ability to upgrade to new equipment quickly and easily, and budget properly are just a few reasons why financing equipment projects make more sense than paying with cash.
For the last several years, our beloved politicians have made the decision to limit the deduction potential of your equipment purchases. But after almost eight years of sluggish recovery and once in a generation slowness for capital investing, the light bulb finally came on in December of last year and you can acquire new commercial equipment for a large discount if you take advantage of this new legislation.
Late last year, Congress brought back the strength of the Section 179 Tax Deduction for businesses. Under the “Protecting Americans from Tax Hikes Act of 2015,” the Section 179 limit is expanded to $500,000 with additional benefits of bonus depreciation for amounts over $500,000. The new law will make this a permanent change and that is really big news! But 73% of small business owners still haven’t gotten the word. In a recent survey more than 7 out of 10 small business owners didn’t understand the financial impact on the affordability of commercial equipment. Well, let’s fix that.
The Section 179 deduction often allows small businesses (subject to specific limitations) to deduct upfront, rather than depreciate over a number of years, the cost of equipment such as computers, vehicles, manufacturing equipment, farm machinery, office furniture, etc. Combined with the benefits of bonus depreciation, the incentive to acquire equipment and stay on the cutting edge of technology is significant.
That’s a savings of up to 35% (depending on your tax bracket and specific situation)!! Each year these assets need to be purchased and put into service by Dec. 31 to qualify for taking the deduction in that tax year. Please also note that businesses exceeding a total of $2 million of purchases in qualifying equipment will have the Section 179 deduction phase out dollar-for-dollar and completely eliminated above $2.5 million. Additionally, under this new law, the Section 179 cap will be indexed to inflation in $10,000 increments in future years. 50% Bonus Depreciation will also apparently be extended under this legislation through 2019, and will be phased down to 40% in 2018 and 30% in 2019.
Start planning now
By working closely with your tax advisor and an experienced equipment financier, you might be able to put more or better revenue producing equipment in-service. You can stop running equipment “until the wheels fall off”. You can bid on that new project more effectively. You can put more revenue producing equipment in-service. A little planning as we approach the 4Q can position your business to maximize this tax deduction and your opportunities for growth.
At Red Thread, we work with customers every day to maximize their equipment purchasing power—putting more revenue producing equipment in-service—with a simple process. If you’d like to discuss how to leverage Section 179 to fuel your growth between now and the end of the year, give us a call.
Equipment purchases typically slow in summer months. Sales teams are often challenged with indecisive customers during this time period. But have you ever wondered why sales follow these similar cycles from year to year and what you can do about it?
The real reasons for the “summer slump” are many, but the consistent behavioral pattern follows the yearly result. At the beginning of the year companies are building and at the end of the year there are tax benefits in addition to knowing with some certainty how the year will wrap up. In the middle, there may be more concern over how the company is tracking toward performance goals. The result…a summertime haze on your pipeline.
73% of small business owners spend less on capital equipment from June to August. The top reason: conserving cash for the big year end push and handling seasonality in the creative services industry.
With some out-of-the-box thinking and a focus on affordability, equipment sales teams have an opportunity to build a pipeline for a busy summer. One best practice involves a simple email communication combined with a finance offering to indecisive prospects, 2-3 times throughout the slower months.
THE EXAMPLE EMAIL:
SUBJECT: Keep your cash, reduce your expenses…new equipment made affordable
Summer might be the best time to think about your next machine purchase. And we make it easy whether you have the cash on hand or not. At XXXX, we offer the best solutions for embroidery equipment combined with the most competitive finance solutions that allow you to preserve your cash and for a low monthly payment…gearing up for your busiest time of year!
In fact our (ASSET MODEL) is available for you as low as XXXX/mo with no money down. As you have equipment needs this summer or just need an idea how to improve your business, give me a call!
We feel a commitment to this simple activity will allow you to more easily meet the needs of a previously indecisive market. At Red Thread, we think finance is at the heart of selling more equipment. We help dealers achieve more with simple, competitive commercial equipment financing. Let’s talk.
It’s summer. And for many of you that can mean your busiest time of year. For others, maybe a time to gear up for your busy season. Busy schedules from seasonal business fluctuations mean stronger revenues, but it can also mean sudden expenses. Whether paying for the unexpected maintenance issue, the urgent office technology need or considering the equipment need to keep up with growth, developing financial options now could lead you to a stronger bottom line when schedules are less hectic. Here are a few tips:
Just because you have the cash now, don’t get crazy.
With stronger cash flows in in peak seasons, you might be tempted to just pay cash for the equipment need. But be careful, preserving that cash for less active months by financing your equipment could give you more predictable cash flows and a financial cushion in the slower seasons–when you need it most.
Expenses now…revenue later.
We often see companies adding staff and more revenue producing equipment to meet demand in the seasonally active months. That growth has terrific long term implications, but in the short term, can put you in a cash crunch. The steady cash flows afforded by well managed equipment financing can help you meet growing needs without struggling in the short term.
Quick money is not always the best money. If you are getting a loan for equipment or working capital, be careful. Some lending options can put big money in your account quickly, but the payment structure is really harmful long term. Make sure you know what you are agreeing to and find partners that can help you quickly AND fairly.
Work with people that know your business.
Let’s face it, very few lenders really understand businesses like yours. So, find a partner with deep experience in the seasonality, unique customer demands and other issues that are very unique to your industry. A partner that has deep knowledge of the equipment you count on and strong understanding of the cash flow implications you face.
At Red Thread, we help business owners dream big and manage the peaks and valleys of seasonal demand. Let’s talk!
The big picture includes the total cost of a solution, above and beyond the thing itself— services, maintenance contracts, and all those extra pieces that turn the piece of equipment from a dumb box into a smart, connected machine. It also includes understanding the opportunity cost. Will this machine replace a less efficient machine? What happens to my business if I don’t have this equipment? And if I do have it, what other costs are involved with running it?
When considering adding assets, leading business owners say TCO—total cost of ownership—is clearly part of the transaction’s bottom line. Forecasting everything, right down to the bank conveyance, they pretty much know all the costs for the asset. They know the cost to staff it. They know the cost to maintain it, etc. They’re forecasting the full P&L, all capital investments they make.
Carrie Radloff of Red Thread Financial, provides an example of how TCO can influence equipment decisions: “An experienced business owner will look at assets that are 3 years old, and will say, ‘Our quilting output is far lower that what newer long arm technology can produce and reduce maintenance issues. If we get a new asset, we’ll be able to all but eliminate downtime issues and increase our production by as much as 20%.’”
These days, total costs are just as likely to include software upgrades as they are to include oil changes. When a company is installing thousands of dollars of equipment, that’s great. But understanding the software needs, maintenance and help desk support system just begin to round out the TCO.
Technology is changing the face of financing decisions as software and services are becoming a bigger part of the deals. But there is more software and services within all kinds of equipment. There are the diagnostics that you use to measure performance of embroidery output. There are telemetric devices that you put in your fleets of cars. Even for something as basic as quilting equipment, you are finding front-end systems that run them. People aren’t just standing at the machine and cranking things out anymore. They run it via a control network.
As a result, smart borrowers now have the ability to bundle all of those things into a transaction and offer our customers a seamless product, with financing and servicing all on the same invoice. Equipment-driven financiers offer an even easier solution as their depth of equipment knowledge makes the “bundling” of TCO an easier process.
At Red Thread, we help small businesses find the balance of TCO for their business. Across a wide variety of assets and industries, count on Red Thread to help you dream big. Let’s talk.
As a seller of smaller ticket commercial equipment, there are a number of finance options you can offer your customers. But be careful, many of these options may not be healthy alternatives.
When it comes to financing the small ticket commercial equipment purchase, many dealers find it easy to offer more “retail credit” solutions. Retail credit alternatives are either similar to—or actually are– credit cards. The approval process is very simple and approvals happen at the end of a computer screen. While the speed may feel like a positive experience, the devil seems to be in the details.
Like a credit card, the interest rates can skyrocket to 20% or more. These high rates are born from essentially unsecured credit programs where most of the offering is based purely on personal credit score and only a few minimal business inputs—least of all commercial equipment. These lenders rarely have any real knowledge of the equipment and the businesses that actually use it. As such, the payment terms are a “one size fits all” solution. They may not understand that a certain asset could easily be financed for 48 months rather than the 24. That lack of understanding just doubled your payment. Another very important factor to consider is that these “credit card-like” solutions may require your investment as a dealer. A real equipment finance partner would never charge you for offering financing to your customers.
But don’t lose heart, there are alternatives out there. Seek lenders that understand the equipment you sell and the businesses that depend on it. These lenders primarily work with smaller businesses and understand the cash crunches they face. They understand the importance of monthly cash flows. And they can help them with a fast, reliable process to acquire the equipment you need without resorting to the “credit card-like” options. A relationship with lenders like these will position your dealership to move beyond a single sale to a long term relationship with the equipment buyer.
Financing a $9000 commercial asset is NOT a point of sale decision. At Red Thread Financial, we know that our finance programs can help dealers achieve with a stronger program to sell desperately needed small ticket commercial equipment. And we never charge dealers for our programs. Tell them to keep their credit cards in your wallet and count on Red Thread. Let’s talk.
- 6 out of 10 business owners secure their financing at the dealer that leads with payment
- Business owners are 4 times more likely to buy from a dealer that leads with a finance program over one that doesn’t.
- Nearly 7 of 10 business owners prefer to finance equipment with an equipment lender versus their bank.
- 6% of commercial equipment sales teams lead with a payment
- 69% of business owners value payment over purchase price
- 88% of business owners look to price/payment as more important that asset specification and brand
- Equipment dealers that lead with a payment program have less sales volatility in a slowing economy than those that lead with a purchase price
If you’re sweatin’ right now, we can help. Red Thread Financial helps dealers achieve more with competitive equipment finance offerings that can help a wider variety of your customers. We have Wall Street level resources with a Main Street level approach. Let’s talk and let’s go.
As a small business owner, you’ve probably been a little underwhelmed with how little some finance alternatives may know about your business. Sure, they can talk about blended interest rates, residual values or even operate a funny calculator that uses something called reverse polish notation. Yes—that’s really a thing. But what they can’t seem to do is “get” you. Because of this business owners try to figure things out on their own and stop seeking advice. Well…stop that. You’re looking in the wrong place.
One of the hardest things about being a small business owner is feeling the overwhelming requirement of being the Jack-of-all-trades. The thing is, Jack was a master of none. And most mid-sized business owners will tell you they grew beyond small business status by realizing they can’t know it all–and were willing to seek advice from experts. This is never more true than in matters of finance.
Once you face the need for real advice, spend your time finding the right experts rather than spending your time trying to figure it out on your own. And sure, this may involve lots of time up front, talking to finance partners about their real experience in your type of business. It will be obvious, quickly, how much they really know about the challenges you face.
Once found, this partner can open doors for you that were previously unimagined. They can guide you through quilt production calculators to determine ROI or talk about screen printing equipment life cycles. They can talk to you about tax benefits your accountant may even have to look up. They can position you for success with financing whether newer to the business or a seasoned pro.
At Red Thread Financial, financing equipment for creative businesses is what we do. It’s in our name. Help smaller creative businesses dream big is how we work. It’s in our blood. We know your business…how can we help you?
When evaluating an equipment purchase, business owners will review a minimum of 3 different options–on average–before making a purchase decision. New/used, brand, features, benefits and of course price play a major role in each decision. And after heavily negotiating these factors with each purchase, business owners usually take the first finance option without looking at options. In fact…
A recent survey of small business owners indicated that 68% only seek one option for financing commercial equipment. And they choose that option 92% of the time.
Why would you spend so much time and energy finding the right asset and so little time ensuring you have the right financing? The structure, term, payment and other components of the financing could drastically impact ROI and how affordable the purchase can be. But the cumbersome reality of the finance process can feel so painful, most business owners simply settle for fast…over best.
Choice inspires competition and ensures the delivery of value. And it’s what most small business owners lack when it comes to financing their commercial equipment. Could there be a smarter approach to financing your equipment?
A different kind of finance solution. And a smarter one.
Imagine how different things could be if a single business relationship could ensure you are getting the best deal possible with your equipment financing. One equipment financier with access to a wide variety of programs, most not available to your bank or dealer. These experts are uniquely on your side of the finance process, fighting for your best interest and only receive compensation when finding the best solutions for your needs. They work to know you, your company and how you buy and use equipment. They can pre-approve you in most credit situations and help you buy confidently. And their unique flexibility gives you more options as traditional lenders ebb and flow in economic conditions.
At Red Thread Financial, our history and smarter approach to equipment finance bring more options to your business for smarter choices. As you look to evaluate the impact your next equipment purchase has on your business, give us call.
Often, we get so busy finding the next deal and pushing it over the finish line that it can be easy to lose focus of the real value equipment brings to small businesses. Sure, in any company cash flow is not just a thing, it’s a life-blood kind of thing. So the amount of the payment certainly plays more than a small role.
That said, a connection back to the value the equipment offers a small business just might be the key ingredient to overcome the “rate is too high” objection. Almost every time a small business is looking to acquire a new asset it’s an opportunity story.
The total cost reduction or revenue opportunity for acquiring needed equipment often dwarfs the impact of an interest rate. And many times, smaller businesses find themselves in a position where they are not really choosing between 5% financing versus a more expensive option. Too often they are comparing a rate they got years ago in their personal life to the rates they are offered in the business today, despite their company or their personal situation not being the prettiest of financial pictures.
If you spend more time on the positive benefits of having the newer equipment, you can show them that the opportunity cost of not moving on it at a higher rate now, is far less expensive than waiting on a lower rate at some point in the future that might not happen anyway. Many times it’s hard for a small business owner to improve their financial picture unless they have the equipment to win new business or reduce expenses that will help them turn things around.
You can also demonstrate that by getting the newer assets earning revenue or reducing costs now, they’ll be strengthening their credit circumstance so that when the next opportunity comes to acquire equipment and improve the business, they’ll be better positioned for financing success. And you’ll be there, as their strategic advisor, guiding them and building loyalty while doing another deal.
At Red Thread Financial, we help dealers achieve more. So leave the financial conversation to us. We can help you move beyond the “rate shopper” and grow your business. Let’s talk.