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Capital Concerns: To Buy or Lease?; Controlling Cash Flow with the “New” Bootstrapping; Take It Out in Trade; Finding Financing Alternatives; What If You Could Collaborate for Free?

Capital Concerns: To Buy or Lease?
Controlling Cash Flow with the “New” Bootstrapping
Take It Out in Trade
Finding Financing Alternatives
What If You Could Collaborate for Free?
What Are the Basic Considerations in Switching to Microsoft Communication Services?

Capital Concerns: To Buy or Lease?

Total cost and tax implications are just two factors to consider

Real estate and vehicles are two obvious choices that spring to mind when it comes to leasing vs. buying for small businesses, but that only scratches the surface of the question. “A lot of people don’t realize that just about any kind of business equipment can be leased,” says Ralph Petta, chief operating officer of the Equipment Leasing and Finance Association (ELFA), a trade association representing the $550 billion equipment finance sector. “If it can be purchased, it can be leased—and that goes for everything from jumbo jets to telephone handsets.”

When you lease a piece of business equipment, regardless of type, a finance or leasing company buys the asset, and you make predetermined monthly payments to that company for a specified period of time. In effect, you pay “rent” to use the asset. Unless your agreement includes conditions allowing you to buy the asset at the end of the lease period, which is fairly common with some vehicle leases, the asset reverts to the leasing company when the lease expires.

With buying, on the other hand, you lay out cash up front for the item, but you own the asset outright. You may choose to finance the purchase with a loan, which lowers your initial capital outlay, but while you will own the asset, the lender will hold a lien against it, and you will pay interest on the money you borrowed.

There are advantages to each approach. With leasing, you allocate the cost of a business asset across many months rather than tying up a large amount of cash that might be better used for other purposes, such as marketing or expansion. Many leases give you the flexibility to upgrade to new equipment at no or minimal cost if your technology needs change before the expiration of the lease agreement.

There may be tax advantages, since most lease payments can be taken as deductions in the year they are paid, while major purchases usually have to be depreciated over a period of several years. Leasing also puts responsibility for maintenance and repairs in someone else’s hands, since most industrial and office equipment leases include ongoing maintenance, software upgrades, customer training, and support.

Buying outright eliminates monthly payments, lowering the fixed-expenses portion of your regular overhead, and may also result in a lower lifetime cost for some assets. There can be accounting and creditworthiness advantages, since owned equipment is carried on the books as an asset, while lease payments represent only a liability. For strongly profitable companies, buying may offer tax advantages; the write-off associated with certain owned equipment may be higher than the deduction leasing the same equipment would provide.

The buy vs. lease decision must be resolved on its own merits for each piece of equipment being considered, but as a general rule, it usually makes sense to “buy small, lease big,” Petta suggests.

A good starting point is ELFA’s educational website. Check out this useful calculator for weighing the financial implications of buying vs. leasing, and this spreadsheet can help you evaluate vehicle leases. To learn more about leasing technology, read “Should You Buy or Lease Computer Equipment for Your Business?”.

Controlling Cash Flow with the “New” Bootstrapping

Often considered a startup strategy, it can play a longer-term role in business

Many entrepreneurs turn to bootstrap financing—tapping their own wallets and/or those of a small group of family and friends—in the early days of their business for a simple reason: It provides the best and fastest access to badly need cash. Traditionally, as businesses matured, they tended to move to other sources of financing, such as bank lines of credit and second-stage venture capital. But as a growing number of small businesses have discovered (or re-discovered) during the recent credit crunch, there’s a lot to be said for playing with your own money.

“Bootstrapping, if you have the flexibility and financial resources to do it, keeps everything in your control,” says John Reddish, a consultant and principal at Philadelphia-based Advent Management International, who specializes in helping entrepreneurs navigate transitional periods. “Commercial borrowing today, if you can even get it, requires greater documentation and a more onerous application process than ever before. Repayment terms are dictated by the lender and are completely outside your control.” A growing number of small business owners are finding that the process takes so much time and energy, it distracts them from other important responsibilities.

Greg Gianforte, CEO of RightNow Technologies, a provider of on-demand customer experience solutions based in Bozeman, Montana, bootstrapped his venture with no external funding whatsoever until it was well established with 400 customers. Today it is a publicly traded company projecting 2010 sales of $175 million to $180 million. He points out that the benefits bootstrapping provides in a business’s early days can continue as it matures. Chief among them are:

• Bootstrapping ensures that you continue to operate and grow your business on a legitimate, real-world value proposition; without the cushion of outside financing, you are dependent on paying customers for your continued existence.
• Bootstrappers are highly motivated to master critical sales skills, one of the most difficult challenges for many entrepreneurs.
• Business owners relying on their own money are less likely to waste it than those who have outside financing on which to fall back.
• Businesses that rely on bootstrap financing tend to be faster-to-market and begin turning a profit more quickly than other businesses.
• Because they don’t have large amounts of accumulated cash from lenders or investors on hand, bootstrappers are less prone to make big—potentially fatal—financial mistakes.
• Necessity is the mother of invention, and without the luxury of a big cash cushion, bootstrappers are forced into unconventional thinking and creative problem solving.
• Since they don’t have to answer to lenders or investors, bootstrappers have greater flexibility and respond more nimbly to market challenges and opportunities.

Of course, in order to rely on bootstrapping to finance ongoing operations to a meaningful extent, you must have a strong cash flow and a solid grasp of your overall financial position.

Links to several free, useful calculators, spreadsheets, and other resources on cash flow analysis and financial projections can be found at Excellence in Financial Management and Inc.com.

Take It Out in Trade

Bartering is one way to monetize inventory or services that might otherwise go to waste

If you are a business owner stuck with excess inventory or a professional with unfilled appointment slots on your calendar, you might want to consider bartering as a way to capture some value from resources that might otherwise have to be written off completely. Bartering is the original business model, and it’s still got a lot to recommend it—especially in tough economic times.

“The most common reason business owners have for trading anything is excess capacity,” says Don Mardak, founder and chief executive officer of International Monetary Systems Ltd. (IMS), a barter network with 14 offices serving 50 major U.S. markets. “Airlines with empty seats, hotels with empty rooms, accountants with unfilled time slots—they all go to waste if they can’t sell them for cash. But barter lets you capture some value by trading with other businesses in the same position.”

Most people think of bartering in terms of direct trade, (i.e., a chiropractor gives a spinal adjustment to an hotelier in exchange for a free room). The potential for such direct transactions is greatly limited by factors such as location, timing, and need. However, barter networks such as IMS and ITEX overcome those limitations by essentially monetizing the barter process. Network participants assign a “trade dollar” value to the products or services they want to sell, and buyers pay in appropriate amounts of their own products or services.

Mardak says that even with this kind of monetization, most bartering transactions remain fairly local, and that it takes a critical mass of 100-150 participants to make the process viable in a given market. Barter dollars are treated like cash for tax and accounting purposes (a barter purchase is deductible if the same purchase made with cash would be deductible), and barter exchanges issue 1099-B forms to participants at the end of the year.

To find barter exchanges in your area, check out barter journal Barter News’s state-by-state listing of the country’s exchanges.

Finding Financing Alternatives

If you’re not ready to go to the bank or venture capitalists, there are other ways to raise funds

Access to capital for growth and continuing operations is always a challenge for small businesses, even more so during a recessionary economy. If you’re not in a position to get bank or venture capital funding, here are some nontraditional sources you might consider:

• Peer-to-peer lending. Sites such as Prosper, Lending Club and Peer to Peer Lending put borrowers and willing lenders together, usually for relatively small amounts. You’re not guaranteed to get a loan, but it’s another avenue to explore.
• Virgin Money. One of entrepreneur Richard Branson’s ventures, this service makes it easier for friends and family to engage in “social lending” to your business.
• Accounts receivable or invoice factoring. This involves selling your accounts receivable (typically those that are past due) to a third party (a factor) at a discount in exchange for immediate cash.
• The Receivables Exchange (TRE) — A new player in the receivables financing space, TRE [www.receivablesxchange.com] is an online exchange that makes it faster, easier, and more economical for small businesses to tap their biggest asset—accounts receivable — for access to the cash they need, when they need it, according to founders Justin Brownhill and Nicolas Perkin.
• Take on a partner — You can increase capital by taking on a partner. The investor can be either an active partner or a “silent” one who is not involved in the business' daily operations. Just ensure that you have a formal, legally-binding agreement detailing the nature of the partnership in place, which describes all the parameters of the partnership, including what will happen in the event of a partner buyout
• Barter — See “Take It Out in Trade,” in this issue.

To learn more about alternative funding, check out “Nontraditional Financing Sources.”

What If You Could Collaborate for Free?

Online collaboration tools have the potential to take your business to the next level, bringing you closer to colleagues, customers, and suppliers. Functions like shared project planning, document management, online meetings, centralized task management, shared calendars and contacts offer invaluable ways to streamline your business.

Windows® SharePoint 3.0, part of Microsoft Communication Services, a productivity suite that is available free of charge to Comcast Business Internet customers, allows you to:

• share documents with employees on your desktop or anywhere you have internet access — including your Windows® mobile device;
• improve team productivity with easy-to-use collaboration tools;
• share files, post messages and manage projects more effectively;
• centralize management of large files and improve revision control;
• support remote and mobile employees with real-time data and documents;
• manage customer and vendor relationships more effectively; and
• get up to 2GB online storage and backup to provide security for your documents.

Learn more about how Microsoft Communications Services and Windows SharePoint can maximize your collaboration.

What Are the Basic Considerations in Switching to Microsoft Communication Services?

If you’re thinking of switching to Microsoft Communication Services, available free of charge to Comcast Business Internet customers, the following brief Q&A can help get you ready to activate these services.

• If I switch to Microsoft Communication Services from an in-house email server, can I still maintain control of the settings and mailboxes? Microsoft Communication Services enables you to maintain control of your email solution without the headache of maintaining the server. The control panel allows an administrator to turn mailboxes on and off, set permissions, set passwords, create distribution lists, create and manage email rules, and set mailbox size and limits. These features, as well as many others, enable an IT administrator to maintain complete control of their email solution.
• I’m currently using Microsoft Outlook with a POP3 or basic webmail account. Why would I want to upgrade to Microsoft Communication Services? Microsoft Outlook connected to a POP3 or webmail email account enables each user to manage their personal information (contacts, calendars, folders, documents etc.), but does not allow you to share it with anyone. With Microsoft Communication Services all of this information can be shared among your business, making you faster at responding to requests, helping you instantly find files and emails, and taking the headache out of communicating with your employees, clients, and vendors. It also enables every user to access their information from any Internet connection, keeping you connected and in sync wherever you go.
• Is it more cost effective to have an on-premise email solution? Microsoft Communication Services offered by Comcast is on average 50% to 90% cheaper than an on-premise Microsoft Exchange server when all costs are considered. To learn more, about the potential cost savings, watch “Yankee Group Research Study: Comcast and Microsoft Help Small Businesses Cut Costs with E-Mail and Messaging.”
• Do I have to move my existing domain to be hosted with Comcast? Microsoft Communication Services does not require that you host your domain with Comcast. You can choose to use the assigned Comcast subdomain or continue using your current domain, free of charge.
• Can I use my current email address with Microsoft Communication Services? Yes, Microsoft Communication Services enables you to send and receive e-mail with your current email address.
• Will I lose my email, contacts, or calendars if I upgrade to Microsoft Communication Services? Our activation process is set up to make it easy to transfer your email, contacts, and calendar information. All of your information migrates seamlessly into Microsoft Outlook or Microsoft Entourage and is stored on servers in secure data centers, so your information is safe and secure.
• How long does it take to get up and running? Depending on your connection, the download may take several minutes to complete. Following the recommended steps, the average user can activate and be using the service in under an hour.

Learn more about switching to Microsoft Communication Services—including information about activation, mobile use, Outlook, use with Macs, security, and support. And check out this hands-on tutorial for information on activating your account, optimizing your use of email, connecting to mobile devices, and transferring and linking domains.

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