Should we use finance to buy computers and other equipment in our office?
Wednesday, February 8, 2012/
I often meet successful business owners who do not like to use credit to buy the things they need for their business.
They are proud of the fact that they run a cashflow positive business and don’t need to use credit to fund purchases. I was like that myself as a young gun. It wasn’t until I started down the M&A path to continue my rate of growth that I realised the disadvantages of investing cash on these chattels of the business.
There are some tax incentives for leasing equipment that can outweigh the interest costs of the loan, and I strongly suggest you talk to your accountant regarding this as I am no financial advisor, and certainly I don’t know your tax status or position.
What I do know is that if you run a professional services company and you approach a bank to finance an acquisition of additional business, you will meet a wall of disinterest.
Worse, if you run a business with a low debt ratio because you collect your debts effectively, the bank will look at your debtor book and elect not to lend you very much money at all.
Yet the IT hardware companies who are keen to use cash surpluses to loan money to spend on IT equipment to drive their own sales will lend at competitive rates, freeing up cash in your business to re-invest in expansion through acquisitions or investment in sales and marketing. If you seek growth in your business there are plenty of ways to use cash better than in the stuff that sits in your office.
Even desks and chairs can be effectively financed to allow more cash for expansion… don’t forget the company car as well.
Examples of this I have observed outside my own business are:
- Real estate agents who could drive significant benefit in their business by expanding their rent roles.
- Doctors who move into larger premises or expand their practice with additional staff to see more patients.
- Consultants who could improve their investment in sales and marketing to get more work in the door. This will smooth out the workload by paying to outsource marketing, and do more with their time.
If you are currently funding all of these capital items from cash reserves then chances are you have limited your capacity for future growth and success. This reaches beyond IT systems, but it’s very much part of expanding your business from small to medium.
One thing I am sure of – the longer you keep the vulture capitalists away from your business, the more of it you get to keep when they finally swoop to help you grow even faster. So, by failing to conserve cash in a good business, the faster you play into their hands.
David Markus is the founder of Combo – the IT services company that ensures IT is never an impediment to growth.