If you’re in agriculture you know that when it comes to buying equipment, stuff isn't cheap. It can be frustrating seeing all these technological advances in farming and not being able to get your hands on it. One solution could be Sale & Leaseback were you use the existing equipment as leverage and allow the cash to come flooding into your business.
What is a Sale & Leaseback?
Opting to go down the sale & leaseback path enables you to use the value of your existing farming equipment, combine harvesters, biomass boilers etc, that you already have on your books. You sell your farm equipment to your chosen leasing company for its base value. Then, after you’ve sold it, the leasing company leases the newly bought equipment back to you.
The effect is that you get a cash injection you otherwise wouldn’t have. This injection of money gives you the chance to purchase equipment or anything else that you need - farm equipment, drones, or free up money to employ a member of staff. Sale & leaseback can happen with almost all types of farming equipment so don’t feel that this option doesn’t apply to you.
Why is this something I should implement..?
- It preserves existing cash - taking out a big wad of cash for a downpayment on equipment or land can cause real damage to a farming companies bottom line. Going down the sale & leaseback road allows you to have the best of both worlds - keeping the cash in your business as well as having the latest agricultural equipment.
- It frees up cash that would otherwise be tied up in your company equipment - yes, granted, you have a lot of money invested in your equipment but it's frankly useless because it's all tied up. Use a sale & leaseback to get that cash back on the field and working for you.
- The responsibility of maintenance and repairs becomes the leasing company’s responsibility - sale & leaseback deals usually mean the leasing company will take ownership of any repairs or maintenance that the equipment might need to undergo during its life.
- Give yourself the opportunity to upgrade your equipment - once your agreement with the leasing company ends, it's likely they will offer you the chance to upgrade the equipment, replacing the outdated stuff, which, in the world of agriculture, can be quite lucrative due to the pace of innovation currently going on.
- Improve your balance sheet… instantly - usually, any equipment is considered a fixed asset on a balance sheet. However, when the equipment is sold and leased back, this removes the equipment from the fixed asset section and is treated as an expense instead.
- Save on that pesky tax bill - lease payments can be treated as a business expense that's written off each year. This is miles better than deducting the depreciation and equipment maintenance expenses… a big advantage for SMEs.
Don't be afraid of not having enough cash in your agriculture business to grow. There are several options, including sale & leaseback, which can help you free up money so you can spend it on technology that will advance the growth of your farm. It's a tried and tested method, designed to help you grow your farming business.
Need some more convincing? Give Alex, Jack or Andy a call, they’ll be happy to answer any questions you have about future agricultural investments.