(Picture courtesy of taxbrackets.org)
All businesses cost money to start. Some business types, like network marketing businesses for example, require minimum investments. A quick meeting between your hammer and your piggy-bank should net enough for most of the MLM businesses that are available in the US.
On the other end of the spectrum are franchise business start-ups. Your total up-front investment can range from around $60k to well over $1 million for one of these franchises.
Let’s say that you have located an opportunity that requires a leased retail space, and a lot of equipment-like a sign business. Your total up-front investment will be around $200,000. Your equipment–the computers, and the sign-making equipment and materials probably cost around $40,000. That’s a lot of money. But, there’s a way for you to avoid writing a check for that amount, and in a lot of situations, it’s a smart way to preserve your capital.
Equipment Leasing
I happen to have a lot of experience with leasing, because I was in the automobile franchising business for over a decade. I once read a financial column in which the writer suggested that people should, “Buy what appreciates, and lease what depreciates.” It makes complete sense. I’d wager that someone like Jim Kramer would agree with that.
For example, if you’re going to get a vacation home, you should probably buy it. It’s value will probably increase over time. (No guarantees, but let’s assume that it will.)
(A nice vacation home)
But, when it comes to things like automobiles, or in this case, equipment that’s going to be used every day, it’s value is not going to increase. As a matter of fact, as soon as you buy it, and use it-it’s value has decreased…a lot. I know that it’s not fair, but unless you want to expend your energy on changing the rules of business, you’re going to have to just deal with it.
If you’re going to invest $200,000 into a business of your own, wouldn’t it make sense to hold on to some of the up-front money if you can? Wouldn’t it be nice to have some money stashed away for an emergency?
If you’re investing in a franchise business, you’ll have to look over the FDD to make sure that you don’t have to buy all of the equipment that ‘s required for your business. Make sure that you’re allowed to lease some of the equipment.
Leasing Isn’t Free
If you can lease some of your equipment, you’re going to pay interest. That’s the cost of doing business. But, you’ll have thousands of dollars available to use as needed, or as I’m recommending, to stash for an emergency.
Of course, before you make any major financial decision, check with your accountant, and/or financial advisor. every situation is different.
And, check out what my friend Marco Carbajo wrote about comparing equipment leasing companies. It’s a really useful article.
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