Cash is King – Why your cash flow is important

News > Cash is King – Why your cash flow is important
Cash Is King

If it appreciates, buy it. If it depreciates, finance it…

It can’t be any more straightforward for a business, cash is king. Your cash and liquidity are extremely important. Even more so in the current economic climate. Think back to this time last year and the impact that COVID-19 and the subsequent lock-downs had on your business. Were you in the fortunate position of having cash on hand to meet immediate debts and pay your staff? Or, like many businesses, were you scrambling to stay on top of cashflow?

Could you have been in a different position had you followed the above mantra? There are various reasons businesses believe they need to buy business equipment assets;

  • “I don’t want to pay interest when I have the cash”,
  • “I want to own the asset and the most appropriate finance solutions don’t give me that option”,

but is it really your best option when you consider what else you could do with that cash?

 

What else could you do?

  • If you’re a stock-based business, could you be investing in alternative or additional product lines?
  • Do you have commercial premises that could do with some upgrades or enhancements to improve efficiency or boost staff moral?
  • Or as above, do you need to keep some of your cash for potential future market changes or economic downturns?

 

“But the cost…?”

Like everything, there is a cost to acquiring assets for your business using a payment solution. These assets should be aligned to generating revenue, or reducing costs though, so it’s not as simple as the headline monthly cost:

  • Depending on the payment solution you decide to use, payments may be 100% tax deductible, as they are treated as an operating expense.
  • If the asset you are acquiring using a payment solution is going to generate $X per month in additional revenue and the monthly rental ($Y) < $X, then you’re in a net gain position. Acquiring that asset using a payment solution and leaving your cash for other needs is therefore a smart move.

 

“I can just use our businesses line of credit. It’s easy and cheaper”

If you’re in the fortunate position to have a line of credit available for your business, this is a possibility. Do consider that lines of credit are established with security. Depending on your circumstances, this security may be your personal assets, such as your principal place of residence. In the case of equipment finance payment solutions, the security associated with the agreement in most cases is the equipment itself, avoiding personal assets being used for security.

So, if you’re looking at equipment for your business and considering your payment options, please take the time to assess the big picture and the potential for market or economic changes overnight. How will you prepare for that while taking advantage of the opportunities available by upgrading or adding to your business equipment assets?

If you would like to find out more on this subject, reach out to the 3E Advantage team to discuss your requirements and find out if an asset finance payment solution is right for you.

 

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