Investing for growth – how can selling with finance give businesses an immediate return on investment?

Having a compelling reason to invest in new equipment at a time of real economic uncertainty might be open to doubt, however, a strong case can be made that such investment is more essential than ever. Gaining or retaining a competitive advantage and improving productivity are now the most important challenges facing every business, however, companies need to be convinced that any investment will achieve those objectives.

A strong case needs to be made to demonstrate that any buying decision will generate the required return on investment. This necessitates a ‘Total Cost of Ownership’ analysis which in turn links directly as to whether asset finance or outright purchase is the best method of acquisition.

The total cost of ownership looks beyond the cash price of a piece of equipment and sets out all the costs and rewards associated with an acquisition. Once such an analysis has been completed it is possible to determine whether new equipment or software will provide a return for the business. To make the necessary calculation four steps are normally taken:

• Investment Period – How long are we expecting to use the asset?

• Total Cost of Ownership (TCO) – What will be the cost of use over the investment period?
  

• Return from the investment (£s) – What will be achieved in projected cost savings and additional revenue from the investment?
  
• Return on the investment (%) – What will the return represent in percentage terms once the costs of the investment are subtracted?

So how does the Total Cost of Ownership link to the use of leasing or asset finance? Quite simply in both cases, the revenue and costs of any proposed investment are presented as a monthly cost for a fixed period which allows any return on investment to be clearly identified.

Further, by offering payment for equipment on a monthly basis, the focus is moved away from cash price, meaning that buying decisions will be based on the best return on investment over the period of use rather than constrained by what can be afforded at the time of purchase.

Acquisition by lease or asset finance also provides users with an immediate return on their investment on the basis that revenue from a new investment exceeds monthly or quarterly rental payments from day one, meaning there will be no period where costs will have exceeded revenue. With an outright purchase, there will inevitably be a period of time before the cost price is covered by any return on the investment, and this adds considerably to the attraction of leasing and asset finance as a method of acquisition.

There are many user benefits to be achieved by acquiring equipment using leasing or asset finance; anyone selling capital equipment needs to present the finance option in a way that encourages customers to make the right long-term decision for their business rather than be constrained by what can be afforded at the time of acquisition.