Posted: Wednesday, 26 April 2023 @ 09:21
If someone suggested that you paid a member of your team their entire year's salary on their first day in the office, you would probably question their thinking. The same can be said of assets.
Making 'things' work for you
We live in a culture of leasing - increasingly we lease our cars, our phones, our furniture. Some do it because they can't afford to pay for an item upfront. Others do it because they recognise that there is value in leasing instead of owning certain items - this is highly dependent on the asset itself. At Rivers we often quote the oil tycoon, John Paul Getty, who famously said:
"If it appreciates, buy it. If it depreciates, lease it."
While it's a punchy statement, it's a top line perspective on what's actually a valuable way for businesses to operate in certain circumstances. Leasing and loans can be valuable growth tools for companies when they're used strategically, and while the daily functionality of leasing and loans boils down to brass tacks affordability, the value of it to an individual or business is in how we think about financing those loans and how we understand them to help make money work for us.
Asset value that's more than the sum of its parts
The interesting thing about leasing and loans for business assets, is you can think about it as almost like having an employee. If you buy a coffee machine and you pay £5000 for it, you pay that amount upfront, even though the machine hasn't made any coffee yet.
Consider the coffee machine like a robotic employee - paid in arrears as it works for you, and making a profit as you balance the cost of coffee and its overall value to your business against your repayments. After all, if you're a coffee shop and you have no coffee machine, then you have no business. Therefore, the machine is highly valuable - more valuable than the sum of its parts, especially over the product lifetime.
The best use of your cash
Ultimately, business leases and loans are about sensible cashflow - where is your cash best placed to enable the functional running as well as the growth of your business? When commenting on the recent rise in inflation and interest rates, one of our Non-Executive Directors, Stephen Bassett, made an important and sound point about the benefits of leases and loans when it comes to making money work for you and your business:
"The situation is a reminder to think about how to make your business more resilient, and one way of doing that is through sensible cash flow, which is where measured borrowing can help you be a bit smarter. Instead of buying the new machine outright, lease it so that you retain cash to operate the business each day. Think ahead and lease it or borrow money at fixed rates, so you know where you stand and you have cash in the bank."
Rivers offers loans and leases operate on a fixed interest rate, so as soon as a transaction is agreed, you know where you stand from the outset and what your repayments will be each month. Know where you stand and use your funding strategically to benefit your business.