Many businesses are looking to improve their financial knowledge this year, as many have had to rely heavily on savings or government grants due to COVID-19 and Stay-at-Home orders. This means that saving and spending in a savvy, stable, and smart way is more important now than ever before.
Regents Capital has been encouraging our clients, businesses, and communities to practice smart borrowing, spending, and saving for years. We want to go a step further by compiling in-depth information on business budgeting, equipment leasing, and financing, which can preserve cash and credit lines while still being able to operate your business at the same level.
First, You Need to Budget
Budgeting can help all businesses plan for greater savings and shine a light on their current spending patterns. Your budget is meant to show you where your money is coming from, how much is coming in, and where it is going. It is important to understand detailed and accurate information about your business spending, especially if you plan to save or borrow money.
Expenses that a business must incur to run the daily operations are called operating expenses and include employee wages, rent, license fees, and advertising costs. Contrary to operational expenditures, which are day-to-day, capital expenditures focus more on long-term investments and assets designed to last a few years. Here are a few considerations when handling your costs and expenses.
- Create a CapEx Budget Limit
Specify the capital spending ceiling, or the maximum amount your company is willing to spend on acquiring, upgrading, or maintaining a capital asset. This is essential to shaping your budget.
- Separate CapEx and Annual Budgets
Companies typically separate their CapEx and annual budgets because capex budgets can manifest themselves across a number of years, rather than a 12-month period.
- Don’t Confuse CapEx with OpEx
It is important to keep operational and capital expenses accurate because their tax treatments are different. A capital expense is depreciated over time to spread cost of the asset over its useful life; whereas, an operating expense is tax deductible in the year it is purchased.
- Actively Control Spending
Create a plan to periodically ensure that actual capital expenditures are in line with the plan and make adjustments when necessary. If one investment goes over budget, another needs to be renegotiated in order to stay within budget.
How to Spend Less & Get More with Equipment Financing & Leasing
Creating a budget for your business might leave you with new knowledge about how much you are spending, and though some expenses can easily be adjusted, there are some necessities that just can’t be lowered. Equipment purchases often fall into this category, as you may rely on equipment to effectively run your business. This is where equipment leasing and financing can help.
With fixed monthly payments and the ability to preserve your cash and credit lines, along with potential tax benefits, equipment financing or leasing can be an important aspect of your business’ budget.
Capital expenditure on software, hardware, and equipment can make up a significant chunk of your overall budget, depending on your industry and when these large ‘one time’ purchases crop up. When budget dollars aren’t allotted for these major equipment purchases or repairs, your equipment needs may often have to be put on hold, stifling the progress of your company and lowering your overall profits.
Instead of depleting your savings to buy the equipment you need all at once, consider financing your equipment through Regents and pay low, monthly fees, working these payments into your existing budget, instead of busting it.