Operating Leases: Keep Money in your Pocket

This translates into the company operating for longer.

This means that the company will increase its chances of getting a better product-market fit, reaching break-even point, and reaching milestones.

Operating leases allow companies to keep cash that would have been paid upfront and have a third party buy it for them to then lease it to them for a fraction of the cost. 

The fraction is usually 1/24th or 1/36th of the total cost, payable monthly (they will lease it for 24 to 36 months, respectively). This way, companies keep cash to extend their runway: more time to sell, develop products, and/or raise capital.

Imagine you need to buy equipment that costs $480k. If you use an operating lease over 24 months, that means you will only have to pay $20k/month. At the end of the contract, the operating lease partner can sell the equipment to you for the depreciated value. They can also resell it to a third party. They make money at the end of the contract.

The key is that you get to keep your cash for longer, which is paramount for the continuity of your business.

This becomes more valuable if a company needs to "buy time". If you need to buy the equipment (e.g. to produce and sell more) and you are considering paying cash, you might be forced to choose between buying the equipment and keeping part of your staff. Why? Because you might not be able to keep both for enough time to yield results. Your runway will be shorter.

If you use an operating lease, you can keep both.

And it doesn't end there. Operating lease partners can also buy software and lease it back to you.

Keep your money in your pocket.

If you are having troubles managing your cash flow and would like to get solutions like this to improve it, feel free to contact us at contact@summa.consulting.