Capital equipment can have a positive or a negative impact on your company’s profits. If you spend too much money acquiring and maintaining these items, your profits can easily reduce.
Capital equipment is defined as equipment with an acquisition cost that is more than a set amount. Acquisition costs refer to the overall cost of acquiring the equipment. In addition to the cost of purchasing the equipment, acquisition costs also include closing costs, delivery charges and any other costs incurred as part of the purchase process.
In order for an item to qualify as a capital asset, it must have a lifespan of more than one year. The items acquired are used to assist in providing a service, selling or producing a product. You can acquire capital equipment through leasing, purchasing or donations. Some items may appear to meet this category of capital assets but they typically do not. An example of an item that does not meet this category is software.
Items that are considered as capital assets vary from one industry to another. For instance, in health facilities, capital equipment includes X-ray machines, MRI machines, patient monitoring equipment, computers, etc.
In capital asset accountability procedures, record maintenance is considered to be very important. The records are usually used to ensure that the equipment meets the federal regulations regarding capital equipment. The government typically requires you to provide them with an accurate inventory. Disposing the equipment is often a matter of strict procedure given the possible tax implications.
Many of the items considered as capital assets can cost thousands or even millions of dollars. It is always important to ensure that paperwork on this equipment is kept up to date so as to qualify for insurance and to maintain warranties.
If the equipment needed is obtained and used effectively, it can dramatically boost your company’s profits. Less maintenance and fewer repairs can prevent losses.
How To Lease Capital Equipment
Leasing capital equipment is a simple and quick process that if done in the right manner, can positively impact your business. It provides a great way of growing your business without impacting your cash flow.
If the equipment you want to purchase will help your company make more profits, then it is better to lease it. Equipment leasing is not a new form of acquiring equipment because it has been around for several years. Approximately 80% of businesses lease some of their equipment. The following are some of the steps that you should follow when looking to lease capital equipment.
1. Select Equipment And Equipment Lessor
What type of equipment would you like to lease? Although you can lease any type of equipment, it is generally a good idea to do a lease vs. buy analysis. For instance, if the equipment depreciates with time, then it is better to lease it, if it appreciates, you are better of purchasing it.
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Look for an equipment leasing company that has good credentials and a good reputation. Avoid choosing companies that offer the lowest rates. This is because the lowest rate more often than not, does not factor in other costs such as interim rent, fair market value or upfront costs.
2. Organize Your Company’s Information
Your equipment lessor will require some information from you such as your contact and bank account information, how long you have been in business and credit report. Most companies do not require you to provide personal information such as your social security number.
3. Send Out Applications
You can send out your application to your chosen equipment leasing company. Approval in most cases usually takes 24 hours. It is advisable not to send several applications to different leasing companies simply because you are trying your luck. This is because it can significantly damage your credit score since many companies do hard credit checks on potential lessees.
4. Structure, Sign And Commence The Lease
Once you have been approved, you need to structure the lease document in such a way that it works for your business. Everything on a lease contract is usually negotiable. Have your financial advisor review your contract before signing it. This is because they can identify any loopholes or unfavorable terms in the lease. Once you sign your lease agreement, the lease period will begin.
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