Why Is Cash Flow Important For My Business?
Without cash, profits become insignificant. Every businesses should have more cash going in than out. Cash funds your payroll, covers your overheads, pay bills, and other critical business functions. What it boils down to is without a healthy cash flow, your business may not survive.
Your profit is what remains after you have cleared all your expenses, and it's what your tax is calculated on. It might seem strange, but several businesses have gone bankrupt while reporting a profit, that’s because they didn’t have enough cash flowing into their business.
While profits help your business reach its financial goals, having a steady cash flow means you have what you need to not only keep functioning, but also the means to reinvest into your business.
How Can Equipment Financing Help Improve My Cash Flow?
For those of you involved with your business's financial planning, two things inspire smiles: the booming economy and cuts to the tax rate. Now may be a great time to add needed equipment to grow your business.
Several businesses might consider making purchases with cash rather than considering different options for equipment financing. The greater motivation behind making an equipment purchase with cash is that it simplifies the process — after all, there's no loan or application process. Plus, without having to pay any interest on a loan, it costs less. Though this may seem like a reasonable way to proceed, paying for equipment with cash instead of financing doesn't make sense.
Financing equipment allows your business to keep more significant reserves, stay nimble, invest elsewhere, and grow faster. Here are four reasons why you should consider financing your next equipment purchase:
1. Establish Long-Term Business Credit & Conserve Bank Lines
It all goes back to that old adage: "It takes money to make money."
This is precisely what equipment financing does: It provides the capital for business expansion, purchasing new equipment, and making more money. Even if you have the cash available on hand, there's one fundamental reason why you should finance equipment: It builds long-term business credit.
Financing enables you to get equipment without tying up your bank lines. Save bank-borrowing options for emergencies.
There may come a time when you might not have the cash required to purchase needed equipment or expand your business. In these situations, having a high credit score for your business could help you secure the financing you need at a lower interest rate.
2. Tax Benefits
As per Section 179 of the IRS Tax Code, the entire amount of equipment purchases can be written off if you set up an equipment lease.
Section 179 is a tax incentive for businesses. This benefit is designed to help small and medium-sized businesses purchase equipment and invest in business development.
Even if you don't pay the total amount for the equipment that year, you can deduct the entire amount on your taxes for the year. A big win!
3. Financing Equipment Makes It Easier To Budget
Predictable monthly payments are easier to manage.
If you decide to make a major equipment purchase, doing so with cash may blow up your budget for the month or the quarter. This may cause unevenness that can set hurdles in your budgeting process.
As opposed to large financial outlays, consistent monthly payments make it stress-free to allot money to other projects and maintain a steady cash flow.
4. Gives Opportunities To Reinvest The Cash To Expand Business
Surplus cash flow helps your business operate in a strategic, proactive way instead of a reactive, defensive manner.
Building new offices, investing in technology upgrades and marketing, renovating infrastructure, providing more training, and purchasing more assets are a few ways your business can grow and progress with strong positive cash flow.
Equipment financing is a reliable financial strategy that empowers your business that helps you maintain a fluid stream of funds, which adds to its overall health and growth/expansion. If you plan on acquiring equipment, let us provide free consultation on payment options that would work best for your business.
There's no speed limit in the business. Since 1990, we’ve been offering fast, flexible financing options that allow businesses to capture growth opportunities.