SHOULD I CONSIDER LEASING A NEW COACH?
Assuming the charges for the coach are paying for the coach, the vehicle should earn a profit; just like the casket you retail should earn a profit. If your services require the use of a coach ten times a month or more, and you are charging $350.00 or more per use, you should definitely consider leasing a new coach.
Many of you may say… “I've always owned outright…” or “I pay cash for my own coach”. However, like anything else, businesses are evolving. With the advent of local warehouses and efficient delivery, many funeral homes are increasing their cash flow by decreasing their casket inventory and implementing more cost effective merchandising and display.
The primary function of leasing equipment is to regulate and control CASH FLOW. Leasing requires less (initial) money out of pocket and has lower payments per month versus traditional financing. In essence you are only paying for that portion of vehicle you are using… and your sales tax is paid along with that portion. You can see how this scenario can make it easy to monitor and manage your monthly costs and profit regarding your coach/limousine. Another major benefit with leasing is that the payments are tax deductible for the full term.
So what about the residual or balloon payment? Leasing companies that specialize in the funeral industry will normally allow a residual of around 30% of the sale price for your new coach on a five-year lease. Equipment depreciates, but in this case it also generates income. Your new coach will not depreciate to $0.00 or be worthless in five years. Again, to control cash flow, why heap this unused value into your payments? Your families are only paying for the portion or time they use the vehicle. Why shouldn’t you do the same thing? Basically, your coach generates income… why tie up your money when you can use someone else’s money to generate profits?
There are basically two types of leases, “Open End” and “Closed End” which will determine what you will or will not pay at lease end. On an “open end” lease you pay the residual and own the car outright at lease end. This can be beneficial when your caseload requires an extra vehicle. This way you keep two coaches on hand and sell off the oldest one every 5 years. The value of your oldest coach can be used towards the residual on the newer one coming off lease. With strategic planning you can maintain a quality image and prevent winding up with outdated or worthless equipment.
On a “Closed End” lease you walk away from the vehicle at lease end. There will be enough value in your coach for your dealer to roll you into a new vehicle, pay all your inception costs; all without any money coming out of your pocket. This can be extremely beneficial when considering you can maintain an effective cash flow and always provide your clients with a new model vehicle. Not to mention new car warranty… and your funeral coach is second only to your building as a visual icon of the level and quality of the service you offer. Remember, ultimately your families will be making your payment including a portion of profit for you.
Leasing today is very flexible. Let’s say you want the tax advantages of leasing but don’t want a balloon payment. You can lease your vehicle with a $1,000.00 residual. Also, regarding your credit profile; leasing will only show as an operating expense, not as a debt as in traditional financing. You’ll have more credit worthiness to purchase one of those corporate funeral homes being liquated!
If you are considering purchasing a new hearse, this may be a good time to re-examine and strategize your approach to vehicle acquisitions, short and long term. Interest rates have never been better for leasing. Upon thorough examination, when you offset items like: upfront out-of-pocket cost, tax advantages, not paying tax up front, not paying interest on the sales tax (as in financing), and the earnings potential of cash-on-hand savings per month; leasing can significantly benefit your bottom line!