Keep Cash and Carry On

How much is cash worth to your business? We’re going to take an educated guess and say that having cash in your business is essential. Without a healthy cash flow, businesses slow down, struggle to function, and will eventually shut down completely. Why, then, do so many businesses insist on using their precious cash to buy new assets or fund growth when they do not need to?

In this article we take a closer look at the cash vs leasing debate, the pros and cons of both options, and the potential savings your business could make with smarter financial choices.

We know, it’s not exactly an original topic for an asset finance broker, and as we emerge from lockdown and work towards something more like business as usual, we could all do with a little inspiration. So what better way to lift our spirits than with some of those uplifting (albeit cheesy) sayings usually plastered across the walls of downstairs toilets, on cushions, and, of course, the always popular novelty mug?

Money DOES make the world go round

Of course, the best things in life are free. You can’t buy love. All you need is love, and all the other platitudes out there. But when it comes to running a business, there’s no getting away from it, money does make the world go round.

In order to operate and grow, businesses need to acquire assets. Those assets might be computers, office furniture, plant, machinery, vehicles, software, or other types of equipment that enable the business to function.

The big question is what is the best way to acquire those assets. The two main options are:

  • Buying assets outright, or
  • Leasing assets.

Buying an asset outright with cash

If it is important that the business owns the asset(s) and you have the capital available, buying an asset outright can be a sensible decision, particularly if the assets are going to retain or appreciate in value. Having said that, buying assets with cash carries both advantages and disadvantages which businesses should be aware of. 

Advantages of buying assets with cash Disadvantages of buying assets with cash
You will own the asset fully.You have to pay the full cost of the asset upfront which can cause a dent in its cashflow.
You can claim capital allowances on the asset.Your choice of assets may be influenced by restricted cash flow, i.e., you may buy what you can afford, not what you need.
You avoid entering a financial agreement that may be difficult to terminate.You may have to take out a loan or overdraft to fund the purchase, and in some cases early repayment of the loan could be demanded at short notice.
The asset will usually cost less overall as there are no interest rates to pay.You will be responsible for the maintenance, repair or replacement of the assets.
 The value of the asset may depreciate over time meaning it will be worth less than what you paid for it.
 You will not be able to take advantage of the tax benefits of deducting the leasing costs from taxable income.

Leasing assets

Leasing enables you to use assets for a fixed period of time in return for regular fixed payments. In some cases leasing enables businesses to acquire assets that they would not be able to afford if they had to pay in full upfront, but that is not the only reason why businesses choose to lease assets.

Advantages of leasing assetsDisadvantages of leasing assets
You don’t have to pay for the full cost of the asset and so can retain cash in the business.A deposit or some payments in advance may be necessary.
You may be able to access a higher quality of asset than you could if buying outright.As leasing agreements will include interest, you may end up paying more for the asset than you have had you bought it outright.
The regular payments are easy to budget for, and as rates are fixed, there will be no surprise costs to cover.You will not own the asset, although some agreements will give you the option to purchase at the end for a fee.
Spreading the cost over time enables you to match the costs in line with your income/return on investment.You will be committing to making the payments for the term of the lease.
In many cases the costs of the assets are fully tax deductible, and sometimes capital allowances can also be claimed on the assets.You will need to ensure that you fully understand the terms of lease, including any end of lease obligations or payments.
In the case of operating leases, you are not responsible for the maintenance of the assets. 
The leasing company carries the risk of the assets breaking down or malfunctioning. 
It is sometimes possible to upgrade the assets during the lease by making a small change to the regular payment rather than having to pay a large lump sum. 

The main point to take away here is that there is no right or wrong way to fund your business’ operation and growth, but businesses should not dismiss the option of leasing assets before they have weighed all their options, and certainly not before they have done the maths.

Don’t go broke trying to look rich

In reality, there are many situations when leasing is a smarter financial decision than buying assets with cash, as this example illustrates.

Paying in cashLeasing option (monthly payments £1,998.50)
Project cost£100,000Total repayable over 5 years = £119,910.00
Tax saving (based on 19% corporation tax, assuming that Annual Investment Allowance has been used elsewhere)£11,955.94£22,782.90
Cost after tax saving£88,044.06£97,127.10
Net Present Value (NPV)*£90,522.47£79,617.34

*What does Net Present Value mean? As we are comparing you paying out cash today against finance that will require making fixed payments over a period of time in the future, we need to ensure that we are comparing like for like – £1 in the future is worth less than £1 today. This is why we need to apply a discount to the future rentals and tax savings to bring them into today’s value of money.


There is a misconception that the only businesses that would choose to lease are those that cannot afford to pay in cash. Some businesses might even avoid leasing as they do not want to give off the impression that they are low on cash. A possible consequence of this, unfortunately, is that businesses part with their cash unnecessarily, causing themselves cashflow problems that prevent them from being able to invest in growth and often missing out on tax savings.

Essentially, they go broke trying to look rich.

This point of view is made even more ironic when you consider that many of the world’s most successful, cash-rich businesses opt to lease assets and use leasing regularly in their financial strategy.

Lease, Laugh, Love

Almost all businesses reach a point when they need to spend money on new assets in order to grow. Assets that deliver a more efficient and effective operation lead to increased revenue and profits. Those profits can then be put towards further investment, leading to yet higher revenue and profits. However, if the assets are only ever funded by taking capital from the business, cashflow and growth are likely to be impacted.

Many businesses have a negative perception of leasing, or any form of debt. In the UK we regularly hear phrases like saddled with, crippled by or even strangled by debt, and we strive to own our own home and become ‘debt free’ by retirement. But if you are a business owner, this negative perception of debt and leasing assets could be holding you back. Leasing assets can be a powerful way to fuel growth and improve a business’ financial agility.

By leasing the assets that your business needs in order to grow, you can spread the cost over time via fixed regular payments and keep cash in the bank. At the very least, this gives you financial breathing space, a healthy cashflow and more flexibility, so you can put your mind – and the cash you’ve saved – to the task of building your business’ future.

Take a moment to think about what you could do if you leased more of your business’ assets rather than parting with your cash. Would you…

  • Invest in research and development?
  • Launch a new product?
  • Boost your marketing strategy?
  • Buy more stock?
  • Hire or promote essential staff?
  • Protect your business against unforeseen circumstances (like a pandemic-induced lockdown) with an emergency fund?

Leasing can be a powerful funding tool for businesses of any size, and when their debt-to-equity ratio hits the right spot, they can accelerate their growth without taking on too much risk. You could get the assets your business needs to succeed now, spread the cost via regular affordable payments, keep hold of your cash to further growth (or maintain liquidity), and potentially unlock big tax savings.

For more on the concept of the ‘optimum debt to equity ratio’ and how it can fuel growth, take a look at our article ‘Why Train a Dragon? The Debt-to-equity Ratio Explained’.

Why is debt a dirty word in the UK?

If you had to choose one adjective to describe how you are feeling about your business’ future right now, what would it be?

Excited?

Optimistic?

Good?

Neutral?

If so, that’s music to our ears, but for many business owners, the unknowns of a post-pandemic future make them feel, at best, anxious, and at worst, terrified.

Of course, fear affects everyone differently. For some it is a catalyst, a reason to take action and fight back, but for others it is a paralyzer. Taking no action and treading water might feel like a safer option, but that is not how businesses grow. Upwardly mobile businesses need assets, the latest technology, functional workspaces, a motivated and productive team, and, of course, cash in the bank.

When used by the right businesses in the right way, finance leasing is a great way to fund those assets and instigate growth, while simultaneously keeping hold of their precious cash.

Why, then, are some business owners scared of finance leasing?

Debt is a dirty word in the UK

One of the best parts of being an asset finance broker is seeing the positive impact that the funding we secure for a customer has on their business, their aspirations and their growth. Whether it is spreading the cost of that new IT system (or even software license renewals), financing the fit out of an office space or refinancing existing plant and machinery, ultimately the outcome is always positive.

Plus, many companies get to unlock significant tax benefits when choosing finance above cash whilst others are able to avoid normal budget restraints, deliver the project they want and start returning benefit to all their stakeholders.

However, despite the positive outcomes, some business owners are still apprehensive about using asset finance.

A survey by The British Bank found that over 42% of UK SMEs they surveyed do not currently use finance and are unwilling to do so whilst 68% agreed that “their aim was to pay down debt and remain free if possible”. We want to be able to puff our chests out and, like a badge of honour, declare we are debt free. We are proud not to use finance.

Culturally, that puts us somewhat at odds with many other developed countries. Take, for example, our near European neighbours in France and Germany. No one really considers buying property there until retirement (possibly) whereas, here in the UK, home ownership is seen as one of the key indicators of a “successful” life. Australians are too busy spending their money enjoying life rather than sinking it into ‘stuff’ whilst our cousins in the USA would raise a Vulcan eyebrow at our determination to pay cash for everything.

 

The finance industry has failed to educate or empower

Wrapped up in our cultural insecurities around finance is also a great deal of ignorance and misinformation which prevents businesses from doing anything other than paying for assets in cash.

Partly this is the fault of the wider finance industry. For too many years, too many supposed experts have cloaked the relatively simple concept of leasing in a mantle of techno-babble and confusing small print. Hardly surprising then that those responsible for making financial decisions in a business, self-confessed non-experts in this dark art of leasing, at best approach it warily or, perhaps, not at all.

We’ve worked hard at Bluestone Leasing to over the years to do the exact opposite – to demystify the mechanics, to present the offer in a clear and easily understood manner and to employ ethical and transparent paperwork throughout. There is clearly much more for us and others in our sector committed to these principles to do.

Awareness of alternative finance products, and indeed providers, is another factor. Survey data has consistently shown that, outside of standard overdrafts, bank loans and credit cards, most businesses are simply not aware of other financial products.

We see this every day at Bluestone. Our Interiors division specialise in financing the interior fit out for companies looking to relocate or refurbish their existing building. They are almost always surprised to learn that they can pay for their workspace much like they do their building, on a lease and spread over time. When they go on to learn that they can often also include all their costs (including labour and fees) and save significant amounts of tax too, they are amazed.

Thinking of investing in assets for your business? Want to make the most of the super-deduction tax benefit but not sure where to start? We can help. Click here to get in touch.

Finance leasing is surrounded by myths and misconceptions

Fear and ignorance are not exactly great motivators for changing behaviour but how real are those fears?

Myth 1. Leasing is complicated

It can appear that way but it really is quite straightforward. Choose a professional advisor, not just one that specialises in asset finance, but one that gives you confidence that they know their onions and is able to articulate the concept clearly and comprehensively. If you come away from that call or meeting still scratching your head, choose again.

Myth 2: Leasing is expensive

Too often clients are fixated on a rate, APR or cost in isolation. Although what you will be paying back is important, try to look at the bigger picture and factor in all the benefits that you are getting that you might not get with either cash or, let’s say, a bank loan. Tax savings, the ability to spread costs and the VAT and the opportunity cost of using cash to name just a few.

Myth 3: We are cash-rich, we don’t need to lease

You’ve got plenty of cash? Now how about making that cash work for you instead of sinking it into depreciating assets that only return value over time? Take a look at the list of clients on our website and you’ll see there’s a reason why 97% of FTSE top 250 companies use leasing. Ultimately it is less about how much cash you have and much more about how well you use it.

Myth 4: I should use my own bank when I want to finance

Asset finance is a specialist area and, put bluntly, not a forte for most high street banks. An established asset finance business of reasonable size should be able to provide access to a myriad of alternative funders for you all focused on this arena – just make sure that they are truly independent so that they take a whole of market approach and don’t just offer their own, in-house funding.

In our case, the panel is now in excess of 50 and over two thirds of our funders are not accessible to you directly. At the very least, you should compare what your bank can offer against these alternatives.

Finally think carefully whether or not using one bank exclusively for all your finance needs is sensible for you. Consider the idea of spreading your risk and retaining those credit lines with your existing funder(s) for when you need them.

In reality, finance leasing is everywhere

The reality is that it is actually quite rare to find someone who doesn’t use some form of finance in their daily life. Aside from the usual suspects (property and cars), we are all surrounded by finance agreements. From the ubiquitous mobile phone contract, through to digital media subscriptions (Sky, BT, Netflix, Spotify, Amazon, Apple etc.) and even home insurance, all are rental agreements where an element of the amount we pay covers the cost of funds, or interest to you and me.

Suppliers work hard to hide these fact from us (that £2,500 interest-free sofa is really a £2,150 sofa with the interest built in) because they too recognise our cultural hang ups. In business, look at how many things are now being offered on a subscription or “as a service” model.

Admittedly, slowly and generationally, attitudes are changing. As already mentioned, the principle of subscribing to all manner of services is increasing popular and demand driven, which is a good indication that attitudes are shifting.

Using finance should never be scary

The truth is that you cannot decide whether finance leasing is the right choice for your business until you understand it, and this is something Bluestone Leasing can help you with. We can analyse whether or not the numbers stack up, match commercial requirements to available funders and terms, and even do detailed tax comparisons of using capital versus choosing to lease.

Most of the time finance leasing makes complete sense but, there are occasions when it doesn’t. However, you can rest assured that if finance leasing is not right for your business, we will be honest and transparent about it. We have no interest in arranging finance deals that will not benefit businesses both in the short and long term.

Like many things that, on face-value, look sinister, once you take a proper look and understand how they work, you realise there is nothing to be scared of. When you work with a finance broker who not only helps you to understand finance leasing, but also empowers you to make the best possible choice for your business, finance leasing holds no real monsters.

If you are a business owner wanting to invest in assets while keeping cash in your business, get in touch with Bluestone Leasing. We can help you to decide if it is the right financial move for your business, and if it is, we will help you understand how taking out a finance lease could benefit your business both in the short and long term.

Want to find out more about investing in assets using a finance lease? Click here to get in touch.

What’s The Best Finance Option For Me?

We sat down with Bluestone Leasing’s Managing Director, Vineesh Madaan, to go through all the facts and options when it comes to finance to make sure you can make the right decision when it comes to financing your next project. Here’s all you need to know on Finance Leases, Hire Purchase, Operating Leases, Business Loans & Cash.

Finance Lease: 

How Does Leasing Work?

When businesses want to acquire assets, they have several options, they can pay cash or look to finance these via leasing. Leasing works where the finance company pays the supplier for the equipment and in turn then becomes legal owners of the equipment, they then lease/hire the equipment back to the end user, the payments are charged plus VAT, which can be reclaimed as normal.  

What Are The Benefits of Leasing?

There are several benefits to leasing, naturally a big one is retaining cash, why pay out for something upfront when you can pay over time for it. Another significant advantage are the tax savings, Leasing is highly tax efficient method of acquiring equipment whilst spreading the cost of paying for it. 

What Type of Assets Are Best Leased?

Any assets can be financed but the majority must be tangible, some funders only require a minimum of 50% tangible others need it to be 80% plus. The benefit is that a lot of intangible items can be incorporated into the finance. This form of finance tends to suit assets that depreciate in value so can be refreshed at the end of the finance agreement. 

What rates Am I Likely to Pay when I Lease?

This depends on the credit rating of your organisation along with the amount being financed, the better the credit rating and bigger the lend the better the rate. 

What’s the Tax Treatment of Leasing?

100% of the repayments are allowable against taxable income, for example if your taxable profit is £100,000 and the tax rate is 19% you will pay £19,000 in tax, if you were to make £20,000 in lease payments then you would pay 19% of £80,000 i.e. £15,200 in tax, saving you £3,800 in tax. 

What Are the Negatives of Leasing?

You do not or will never legally own the asset, so if asset ownership is your thing then this will not be the product for you. 

What Happens at the End of Leasing Term?

At the end of the agreement, you must cancel the agreement with the funder once this happens rather than to continue to pay rents you can pay a one-off infinite rental to retain uninterrupted continued use of the asset, allowing you to do what you want with the assets. 

Hire Purchase: 

How Does Hire Purchase Work?

The asset is paid for by the finance company, they will want the VAT to be paid up front on the cost of the equipment, this can be claimed back as normal. The finance company then charge a regular payment to the end user, the last payment has an additional option to purchase fee which transfers legal title to the customer. 

What Are The Benefits of Hire Purchase?

You have the legal right over the asset allowing you to claim capital allowances including any enhanced capital allowances that maybe available. Also subject to you making all the payments you will become the legal owner of the asset. 

What type of assets are best bought with Hire Purchase?

Assets that retain their value are generally financed under this method, because at the end of the finance ownership will be retained. Also should the end user want to utilise enhanced tax allowances then they would use this method. 

What rates Am I Likely to Pay with Hire Purchase?

This depends on the credit rating of your organisation along with the amount being financed, the better the credit rating and bigger the lend the better the rate. 

What’s the Tax Treatment of Hire Purchase?

The asset is classed as owned by the company so the end user will claim capital allowances as it would normally do for any other asset it owns, the end user can also claim the interest paid on the finance against taxable income. 

What Are the Negatives of Hire Purchase?

If you do not have any enhanced capital allowances gaining full tax deduction for the purchase of the asset can take an exceptionally long time, also the VAT needs to be paid upfront so needs to be factored into cash flows. 

What Happens at the End of Payment Term?

Once all the payments are made including the fee then the agreement ends and ownership of the asset is transferred to the end user. 

Operating Lease: 

How Does an Operating Lease Work?

The finance company pays the supplier for the equipment and in turn then becomes legal owners of the equipment, they then lease/hire the equipment back to the end user, the payments are charged plus VAT, which can be reclaimed as normal. 

What Are The Benefits of an Operating Lease?

The best use of this type of finance is for assets that have a residual value and where the asset needs refreshing on a regular basis. As the funder has taken a residual value, payments are lower and the asset is handed back at the end of the finance term and a new assets are financed again and so on. 

What Type of Assets Are Best Bought With an Operating Lease?

They have to have a value so the finance company can recover their residual value with a profit. It works well for IT equipment. 

What Rates Am I Likely to Pay With an Operating Lease?

This depends on the credit rating of your organisation along with the amount being financed, the better the credit rating and bigger the lend the better the rate. 

What’s the Tax Treatment of an Operating Lease?

100% of the repayments are allowable against taxable income, for example if your taxable profit is £100,000 and the tax rate is 19% you will pay £19,000 in tax, if you were to make £20,000 in lease payments then you would pay 19% of £80,000 i.e. £15,200 in tax, saving you £3,800 in tax 

What Are the Negatives of an Operating Lease?

You will never own the asset, whist your payments are lower, you will need to re-invest on a regular basis and if you want to retain the assets the costs would be higher than a standard finance lease. 

What Happens at the End of Payment Term?

The assets are returned to the finance company where fair wear and tear is allowed, if there is any more damage the cost will need to be covered, alternatively the finance company can be paid out of their residual for continued use, this will be an expensive option. 

Business Loan: 

How Does a Business Loan Work?

A loan as it sounds is where a company is financially assessed and if they qualify a funder provides them a loan in return the company make regular repayments to cover the loan and interest. 

What Are The Benefits of a Business Loan?

A loan allows the business to use the funds for anything so does provide greater flexibility. 

What type of assets are best bought with a Business Loan?

Any as the loan is paid to the business for them to use as they wish. 

What rates Am I Likely to Pay with a Business Loan?

This depends on the credit rating of your organisation along with the amount being financed, the better the credit rating and bigger the lend the better the rate. 

What’s the Tax Treatment of a Business Loan?

For the loan itself the interest on the repayments is deductible against taxable income. Should the loan be used to purchase an asset then capital allowances can be claimed as normal. 

What Are the Negatives of a Business Loan?

Loans may require additional security. It can also tie up main bank lines of credit reducing the ability for future growth. 

What happens at the end of payment term?

Once all the repayments are made then the loan just ends. 

Cash: 

What Are The Benefits of using Cash?

Saves paying any interest or taking out any debt. 

What Are the Negatives of using Cash?

Cash is key for any business to survive so retaining cash is key, utilising all your cash when things could be financed is not safeguarding the future of the business. 

Get in touch to speak about the best way to finance your next project.

Give Yourself The Edge

If you offer commercial agency and property management services, attracting tenants and buyers just got easier.

Offering a purchaser the option to spread the entire cost of their fit out over time or giving a landlord a powerful alternative to cash contributions for tenant fit out costs could give your business the edge you need.

finance, property, agent, cash

 

Sale & Leaseback Explained

sale and leaseback

Have you made a purchase in the last three, six or 12months without taking advantage of the benefits of leasing?

If you have made a purchase within the last three, six or 12 months; or potentially even longer for larger equipment and machinery, and paid cash you can still take advantage of the many benefits available to you by using leasing.

Bluestone Leasing can arrange a sale and leaseback solution for you, allowing you to carry on using the asset whilst freeing up the capital to deploy elsewhere and work for you.

Other Benefits of Leasing

Leasing benefits

Alternatively if you have any planned capital expenditure for this year, Bluestone Leasing can offer you a payment option that will allow you to retain the cash for use elsewhere, unlock great tax benefits and spread costs in line with your return on investment.

If you are a customer wishing to discuss leasing options further give the Bluestone Leasing team a ring today on 01924 248812.

 

 

Funding for Software Projects

software leasing, finance

Are you considering upgrading, renewing or growing your software estate?

Would a large outlay of cash have a detrimental effect on the cash flow of your business?

Then Bluestone Leasing can help. We are software finance specialists and with our panel of over 40 funders you can be certain we will secure you the best terms available.

We fund all brands and types of software licences, including:

  • Microsoft Licenses – OVS, CALS, SQL, Office, Dynamics
  • Adobe Creative Cloud
  • Security – Symantec, ESET, Sophos, etc.
  • Design & Manufacturing Software
  • ERP
  • CRM
  • Clinical Research
  • Bespoke Solutions

What about Consultancy costs? Professional services? Don’t worry, we understand that software deployments, like other IT projects, can often include a proportion of service costs. We can wrap all of your project costs into one facility – complete funding for your entire expenditure.

The Benefits

Tax Savings – Finance lease agreements are highly tax-efficient; meaning the repayments (including any interest) are 100% tax deductible.

Fixed Costs – Your costs are fixed for the entire term, and the VAT is spread too, meaning no large capital outlay. Why pay in full, up-front for something that will return its value over time?

Strategic Approach – Using a finance solution allows you to adopt a strategic approach to your software investments moving forward, treating your costs more like a managed service than a large, and often ad hoc, capital outlay.

So, if you’re a customer wishing to discuss a project, or you are a partner wishing to offer your customers a powerful alternative to paying cash for software and IT contact Bluestone Leasing on 01924 248811.

Finance for the Printing Industry

The nature of the print industry can make investing into new equipment for many a real struggle.  Notoriously, many are modest businesses with a net worth to reflect that and tend to be ‘lifestyle’ businesses where making small profits and paying nominal tax is the norm.  Unfortunately this does have an impact when it comes to securing credit for large pieces of print machinery without which they could not operate.

Help is however at hand. At Bluestone we take a much broader view. We consider the entire picture including how this new acquisition will affect the profitability of the company moving forward.

We work closely with the customer explaining what information we need and why we need it, ensuring that we maximise the chance of securing the credit they want quickly and at a competitive rate.

If you have an opportunity you would like to discuss with us further please do not hesitate to contact us at 01924 248800