Leasing – The CFO’s Strategic Weapon

Companies lease, rather than buy, many of the assets they use to run their business. Examples include commercial real estate, industrial equipment, technology and transportation assets.

Real Estate

Industrial Equipment

Technology  Assets

Transportation  Assets

There are a number of benefits of leasing. It frees up cash. Instead of tying up cash in capital expenditures the cash can be used for other purposes. It offers a hedge against obsolescence, enabling companies to refresh equipment periodically with the latest models. Leasing also stretches budget dollars. Instead of having to pay 100% of the costs to acquire an asset up front, businesses can spread ~85% of the costs across multiple years.

The Global Leasing Market

$5 Trillion

Lease Financing

100 Million

Lease Contracts

1Billion

Leased Assets

New Lease Accounting Standards

The Broken Promise of Leasing

Despite the numerous business advantages to be gained, leasing is an under-utilized form of financing. Over the past 10 years some of the world’s largest and most innovative companies have significantly scaled back their leasing programs, choosing to purchase assets instead. We estimate that companies are carrying over $2 Trillion on plant, property, and equipment assets on their balance sheets that should have been leased rather than purchased. 

Over $2 Trillion of capital tied being inefficiently tied up in plant, property & equipment assets worldwide

There are a few reasons why many CFOs prefer to buy rather than lease:

Excessive Costs

Leasing is marketed as offering significant financial benefits to the customer. However, the contracts are designed to maximize profit for the financial institutions that underwrite them. Customers end up leasing at higher rates than they should and paying more fees than they expected.

Administrative Burden

Managing a portfolio of 100, 1,000, or 10,000 leased assets creates a significant administrative administrative burden  for organizations. Companies must modify business processes and add headcount to track the leased assets and their associated contract milestones.

These challenges prevent organizations from realizing the economic benefits they expected to achieve from leasing. 

Reinventing How Businesses Lease

The root cause of the challenges with leasing is the lack of technology available to automate the business processes such as tracking assets throughout the lifecycle and analyzing spend patterns for waste and inefficiencies. 

Historically, there has never been an enterprise software application designed to procure, manage, and account for leases. Instead, companies have attempted to administer their leases using spreadsheets, emails, and yellow sticky notes. But these approaches do not scale, especially at large organizations with multi-billion dollar lease portfolios. With $5 Trillion in portfolios worldwide, leasing is one of the biggest areas of corporate spend yet to be disrupted by technology.

At LeaseAccelerator, we are on a mission to eliminate the costs and complexity that drags down the economics of leasing.  Our mission is to reinvent the way businesses lease. Renting an asset should be just as fast, easy, and simple as purchasing one. Our aim is to put customers back in control of their lease portfolios and empower them to realize the cash flow acceleration and budget elasticity benefits they deserve to achieve.

Rentopia

A State of Corporate Nirvana for Your Lease Program

New Lease Accounting Standards

Once you have digitized the business processes for leasing you will be able to truly realize all of the economic benefits that can be obtained from renting assets rather than owning them. You can accelerate free cash flow. You can regularly refresh equipment with higher performing assets. And you can achieve much greater levels of budget elasticity. You can reach a state of rentopia – the corporate nirvana that happens when you can scale your leasing program without having to hire an army of people to maintain it.

Lease Accelerator Reporting

Free Cash Flow

Rather than tying up capital in purchasing assets, many of which depreciate in value over time, companies can lease them and free up cash flow.  Higher free cash flow could lead to increases in stock prices and higher market capitalization. 

The cash generated can be invested in R&D, product innovation or market expansion to fuel additional growth and create long-term shareholder value.  Alternatively, companies can use the cash for share buy backs to boost stock prices or issue higher dividends to share holders.

Lease Accelerator Managed Services

Higher Performing Assets

Leasing allows for more frequent refresh of vehicles, technology, and machinery.  Organizations can systematically replace aging equipment every 3-5 years and replace it with higher performing assets using the latest technology.

Older computers can be regularly refreshed every 3 years with newer  models with greater capacity and faster performance.  Older vehicles can be regularly refreshed every 5 years with newer models that offer greater energy efficiency and safety features.

Lease Accelerator Portfolio Management & Stakeholder Performance Measurement

Greater Budget Elasticity

Rather than paying 100% up front for an asset, companies can pay ~85% of the purchase price and spread the costs over a period of years. Modern leasing programs offer much more contract flexibility and pricing innovation than in years past. 

Traditional 30-year fixed real estate leases can be replaced with 12-month flexible co-working contracts. Fixed monthly payments for data center servers can be replaced with consumption pricing models that charge based upon actual utilization.

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