FINANCIAL EXPERT LISTS IMPORTANCE OF LEASING FOR ECONOMIC GROWTH
By PETER EGWUATU
Equipment leasing has been described as an important tool to help organizations acquire equipment as paucity of investible funds continues to be the nation's economic albatross.
Managing Director/CEO, Rosabon Financial Services Limited, Mr. Chukwuma Ochonogor, stated this during an economic interactive session in Lagos at the weekend.
He said''In some cases, you can include the full cost of the equipment, as well as the service, shipping, installation costs and maintenance in the lease. This spreads the cost out evenly over the term of the lease freeing up cash flow for other vital business expenses.'
He, however, highlighted key reasons why Nigerian entrepreneurs should cultivate the habit of leasing; stressing that ''Leases allow you to retain capital strength by allowing you to buy the equipment you need today while spreading out your payments throughout the life of your equipment.
'Thus allowing you to save your capital for other expenses such as adding sales personnel, increasing marketing, or taking advantage of quantity discounts (a 2% discount each month can really add up), which means that you will have more money to invest in revenue-generating activities''.
He added that 'One general rule is to invest your working capital on things that appreciate or accumulate in value such as employees or real estate, and lease items which depreciate or lose value such as equipment and machinery. In addition to these advantages, a lease allows the lessee to acquire more of the product or more high-end equipment than they would if they purchased.
Mr. Ochonogor reiterated the sound Balance Sheet Management advantage of Leases explaining that ''a lease is not considered a long-term debt or liability, and therefore does not appear as debt on your financial statement, making your company more attractive to investors.
The Financial expert noted that payments are treated as operating expenses on the company's balance sheet, and therefore do not have to be depreciated over the life of the equipment.
''As your business grows and your needs change, you can add to or upgrade your lease at any point through add-on leases or master leases. There are a number of leasing structures available to allow you to tailor the lease that best accommodates your needs and requirements: such as cash flows, budget, transaction structure, and seasonal or cyclical fluctuations. Many leases also allow you a great deal of end-of-term flexibility, allowing you to purchase the equipment, renew your lease, or simply return the equipment once the lease has expired''
He added that Tax agencies do not consider an operating lease to be a purchase, but rather a tax-deductible overhead expense, stressing that ''therefore you can deduct the lease payments from your corporate income and are not taxed on them''.