Business owners are always looking for ways to increase their company’s cash reserves. There is never a problem of having too much cash on hand, as it can be used in a variety of ways to keep your business up and running. At times you may be challenged to devise ways to increase the amount of cash available for your day-to-day operations.
One way to generate an influx of cash into your business is through a sale and leaseback program. This implies that you have a resource or commodity that has cash value to other parties and that can be leased back for your operational use. A prime example of this type of resource is when a company used their trucks in a sale/leaseback program.
Let’s take a look at how a sale/leaseback program involving your company’s vehicles might benefit your business, as well as some potential downsides to engaging in this type of practice.
Benefits of a Sale/Leaseback Program
According to truckinginfo.com, a sale/leaseback strategy can often make sense for companies under these conditions.
- In a merger or acquisition scenario, the purchasing company may suddenly have an influx of vehicles that are on full-service leases. This can cause issues with maintenance costs incorporated into the lease if the company already has its own maintenance facilities. You can structure the sale and leaseback so that the newly acquired equipment is sold and leased back to the new owners which eliminate the need for outsourced maintenance.
- Consolidation of assets which have been acquired over time in multiple acquisitions. Taking the various financing programs that affect these assets and combining them into an overall sale/leaseback program can simplify the financial oversight required and reduce costs.
- Acquiring companies can use a sale/leaseback arrangement to help refresh the fleet and bring down the average age of the vehicles in use.
In addition, there are often incentives that revolve around the financing terms of sale/leaseback programs. You can often obtain lower payments and rates on a loan for this purpose and the payments may be classified as operating costs and potentially be used as a tax write-off.
Drawbacks of Sale/Leaseback Programs
Tying up your company’s assets in a sale/leaseback arrangement has many advantages, but also can pose some problems. Among the issues that can impact this type of business deal are:
- Your equipment is used as collateral. You will no longer own your vehicles once you have entered into a sale/leaseback agreement. You risk losing the equipment if you cannot keep up with the required payments.
- The value of your equipment may be lower than you expect. While you are entering into this program to generate cash for your business, the value of your assets may be reduced as the financier is only concerned with the liquidation value of your trucks. This may not be in line with the value that you wish to receive for your company’s valuable assets.
All in all, a sale/leaseback program can present a great opportunity for a trucking company to accumulate cash reserves. Study your situation carefully before committing to selling and leasing back your vehicles.
