Biggest Mistakes Businesses Make When Leasing Equipment
Many new businesses don’t have a lot of money to spend on new capital. Leasing equipment is often an attractive alternative that offers a much higher return on investment. However, it important to know what you are doing when leasing equipment. Here are some common mistakes that you will want to avoid.
Paying Too Much Money Upfront
You may be tempted to pay a lot of money for your lease upfront. This gives you the peace of mind that you don’t need to worry about making a payment again in the future.
While it may feel good to get your bills paid off early, it isn’t a good idea to prepay too much for your lease. The equipment could be stolen or damaged before you get your money’s worth. The leasing agency’s insurance company would reimburse them for the loss, but the company isn’t legally required to return your deposit.
Overestimating Production Needs
You want to make sure that your future business projections are realistic. You can easily overpay on leasing if you overestimate your production needs. This can be costly mistake if business starts to slow down later on. Here are some things that you will want to do before leasing equipment:
- Find out how many units you can produce with a given piece of equipment. You may find that you don’t need to spend nearly as much to meet your needs as you anticipated.
- Don’t forget about seasonal fluctuations. Many businesses become overly optimistic with their projections during the busy parts of the year. Keep in mind that business will eventually slow down later on.
- Try to have at least a few years’ worth of sales data for your industry in the area that you operate. You may want to try to find information on competitors if you are a new business.
Make sure that you understand your business’s needs before committing to leasing any equipment. You want to lease exactly what you are going to need.
Failing to Communicate With Your Leasing Provider
You need to make sure that you understand exactly what your leasing needs are. You may not have a clear idea of what they are at first. Fortunately, a good leasing company will be happy to work with you.
You will want to make sure that your leasing company has worked with companies in related industries. They will be able to give better advice about the benefits of equipment leasing if they understand your business model. You will need to have accurate records on your company’s production needs so that they can give informed advice.
Failing to Monitor Results
You always need to make sure that you are receiving a reasonable return on your investment. Make sure that you monitor your results carefully. Here are some questions that you will need to ask yourself:
- Are you meeting your production quotas?
- How much time and money do you need to spend on maintenance?
- Do your employees find that the equipment is easy to use?
You will want to contact the vendor if you aren’t satisfied with the equipment. They may able to offer some new equipment that will meet your needs.