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OVERVIEW – Information on the sale leaseback solution used by companies to generate additional cash without selling assets. This leasing tool generates funding without selling owned assets . Business owners and financial mgrs should investigate lease back 101!
For various economic and financial reporting considerations this finance strategy continues to be scrutinized as a financial option for Canadian business. Let's dig in.
The overall sale leaseback strategy has been around for a very long time, and, as noted, continues to gain in popularity. The primary reasons for its increasing usage are the ability of business owners to enhance their profits to a certain degree, as well as, even more importantly, to generate additional cash flow for the business. That is the key benefit of the latter would appear to be the most obvious benefit.
Business people continually look for 'creative 'solutions to financial and cash flow challenges. Who wouldn't want that? Luckily these days more and more alternative solutions to cash flow needs are around.
The basic strategy? Its simple .Your firm has equipment that has been fully paid for and is currently unencumbered collateral. Your interests are simply, you wish to take advantage of the equity in the equipment, but at the same time you wish to continue to use the asset.
Naturally the asset base of consideration for such strategies involves a broad number of industries and an even broader number of assets. More often than not need is very basic - how can you leverage assets to bring more cash into the firm? In certain cases, if a transaction is managed properly you can enhance you overall financial statement ratios.
There are of course some key accounting issues that Canadian business owners and financial managers have to take into consideration. Based on the value of the transaction your firm may have to book either a gain or loss on the transaction.
What are some of the other motivations for considering such a strategy? We can broadly group them into a couple of categories - i.e. Cash flow, accounting and tax, and balance sheet and income statement enhancement.
If your firm structures the transaction as a true operating lease when you enter into the sale leaseback you have somewhat m magically taken debt off your balance sheet and improved many of your key operating and loan covenants .
Payments create a monthly expense and this amount more often than not is less than the deprecation taken on the asset, so, via the magic of accounting your firm has created additional earnings! In cases where you do in fact have a 'gain' on the sale leaseback those also of course add to the profits of your firm. We love those accountants, right?!
In summary, Canadian business owners and financial managers should investigate the strategy of a sale leaseback of assets, in the current economic environment such a strategy can enhance your firms overall liquidity and profitability. That's a good thing.
Seek out and speak to a trusted, credible and experienced Canadian Business Financing advisor.
7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .
7 Park Avenue Financial
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Office = 905 829 2653
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
Stan Prokop
