IT’S ALWAYS A GOOD TIME TO RENT – NOW MORE THAN EVER
It is common knowledge that technology products are in a constant state of change, with pricing, technology and performance barriers constantly being challenged. Businesses in South Africa have to deal with the reality of reduced income, higher interest rates and increased demands on their practices.
Another common quandary facing many Professional individuals when acquiring technology based equipment is: “How does one acquire the use of the equipment item without purchasing; where it’s usually obsolete, with virtually no book value even before it has been written off; and, how can a supplier be persuaded into supporting their customer’s requirements over the long term, while assisting them in affording, and tracking, all of their present and future needs?”
Advice supporting a relatively simple solution is to be found in the sentiments of two internationally prominent financial gentlemen, who need no introduction, Warren Buffett and the late Jean Paul Getty.
An operating rental is a cost-effective method of utilizing an equipment asset without having to initially outlay the purchase price of the equipment. It is a form of acquiring equipment in which capital expenditures are kept off the balance sheet. Professional individuals will o ften use off-balance- sheet financing to keep their debt to equity (D/E) and leverage ratios low, especially if the inclusion of a large expenditure would break negative debit covenants. In contrast to loans, debts and equity – which do appear on the balance sheet, operating rentals are one of the most common forms of off – balance-sheet financing.
With no deposits, and the ability to achieve maximum off-balance-sheet tax benefits, , it’s not the smarter choice to productive business, but “The Only Choice.”
UPGRADE – With the constantly changing technological needs and requirements of a Professional Individual, and the continual development of the technology, it is imperative to avoid technology obsolescence. Rentals provide for such an eventually, affording the client the option to upgrade during the rental period , thereby providing for future technology solutions, while staying abreast with the latest technology.
Rentals allow Professional Individuals to redirect capital expenditure towards “core” assets that will appreciate and maintain their value over time. And, by spreading the cost of the rented assets over their appropriate useful lives, the solutions deliver significant benefits to the client.
BENEFITS OF THE RENTAL PLAN
Internationally, it has become a trend to replace the purchase of hardware with more flexible rental options, thereby keeping up to date with equipment upgrades as they occur.
- Rental plays an increasingly important role in the acquisition of equipment, allowing businesses to keep up with the latest technology and address future needs while reducing maintenance and upgrade costs.
- Payments and Equipment are 100% tax deductible as an operating expense.
- There are no deprivation charges, no asset inflation on the balance sheet (off-balance sheet item) and no initial high capital outlays, allowing the asset to be spread over its useful life.
- Flexibility options to upgrade, replace or add.
- VAT is payable monthly.
- Technology life – cycle is well managed
RENTAL ADVANTAGES AS AN AFFORDABLE MEANS OF FINANCING:
- Monthly rentals of capital equipment are an affordable option allowing you the use of the equipment without any capital outlay.
- Ex Vat rentals are 100% tax deductible as an operating expense in your income statement which would then reduce your income tax obligations.
- Vat is claimed back monthly, and thus is not capitalized over the period
- Capital financed is not placed on your balance sheet as a long term liability, thus return on asset ratios are improved. This would benefit yourself if you are looking at future financing of vehicles or property when a bank needs to assess your financial position.
- You have the option of upgrading the equipment before the end of the contract thereby providing the flexibility to change in line with modern technology.
- Ownership of the equipment at the end of the term for one additional rental via the supplier of your equipment, you may elect to transfer the asset into a company (or trust) of your choice