Lessons from leasing

According to reports from LEX Autolease, there was a huge increase in SMEs leasing company vehicles. During 2014 there was a 21% rise in car leases, and a 101% rise in van leases.

Commenting on the figures, Simon Barter, who oversees SME leasing operations, said the rise was “an indication that SMEs are increasingly looking to streamline their operations and cut their overheads by stripping their balance sheets of depreciating assets”.

Barton believes the rise in leasing is caused by small businesses restructuring their operations for growth as the economy continues to pick up speed.

So could these same benefits be realised elsewhere in the business?

Why lease?

One of the key reasons for leasing equipment like cars is to help reduce capital expenditure and asset ownership. Buying a car involves a relatively large upfront expenditure, or finance payments over several years. Once the vehicle is owned, it shows as an asset on the company balance sheet that needs to be maintained for several years as it depreciates in value.

Choosing to lease a car converts that cost from being capital expenditure to operational expenditure. The car is never owned, so there are no concerns about assets and depreciation, or the potential tax implications.

The other major benefit of leasing is that the responsibility (and cost) for all maintenance and repair is borne by the business providing the lease.

What can I lease?

Although most people think of cars when they consider leasing, there are dozens of other items your business may be able to lease, helping to cut operational costs elsewhere in the business. PCs, laptops and tablets can all be leased for instance, helping to spread the cost of ownership. More importantly, leased computer hardware can be returned at the end of the contract period, helping to avoid the common problem of having to replace outdated, underpowered machines before they must be written off by the accounts department.

Instead, machines are returned to the lease provider, allowing you to take out a new agreement for brand new hardware. The same is also possible for other office equipment such as photocopiers and franking machines.

Cloud software – subscriptions are like leasing too

Just like computer hardware, software becomes redundant or unsupported over time, and it can also be quite expensive to extend licences for as your business grows.

Cloud software offers similar benefits to leasing, allowing businesses to purchase a subscription, rather than making a capital expenditure for boxed software. Additionally, all support, maintenance and upgrades are included as part of the subscription fee.

Cloud applications exist for virtually every business operation, from Office 365 for productivity, Salesforce.com for customer relationship management and Xero for managing your accounts. Choosing Cloud subscriptions could provide another way for businesses to streamline their expenditure in much the same way as car leasing and provide new efficiencies that result in further cost savings.

Obviously it is very important to consider the financial implications of entering a legally binding lease agreement – get in touch with our expert accountancy team if you need further advice.