New Way to Finance Office Technology Considered

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Here is a new scheme that companies can use to upgrade their IT equipment, without raising their fixed by lowering their fixed operating costs and transferring a portion of that from their P & L Statements to their balance sheets. How so you ask?

Well, here is how it works. Let’s say your telephone, long-distance and internet services run $5,000 per month? Well, there are companies now that can switch you telephone service to VoIP and cut down your phone bill by $2,500 per month by eliminating all the fees and long-distance charges. Next, they take the $2,500 per month average in monthly savings and use that to buy new IT equipment to upgrade your entire system to handle that and whatever else you want; well, such as video conferencing or online training and a host of other things.

The company offering this financial product helps those who partake in it a way to depreciate equipment, (a tax savings) which can be accelerated for the first year as per the tax law. Plus, they lower their operating costs, which transfers to greater profits. The company managing this financial plan works directly with the vendors of the new equipment and their sales departments, so they move more equipment. Everyone wins, and this looks like a CFOs dream on paper.

Now then, on first glance, I completely concur that the concept and idea is sound, even brilliant. And yes, there is always an issue with long-term management in any endeavor that spans several years. Now then, there are many “Fixed Mandatory Expenses” in any given business model. Indeed, GE, Xerox spent time doing the opposite, converting capital costs to on-going “fixed mandatory expenses” and they did a huge amount of business, in their efforts going the opposite way, there was a huge management issue too.

Perhaps, this concept can be applied to various other industries, such as Solar, where there are huge changes with cheaper solar cells, meaning faster ROIs, meaning you can convert easily to help companies, even individuals upgrade to the latest efficient units?

Sure, it makes sense to tap into the dealership networks that exist in this way. This is how leasing companies offer their services; they get in with the dealer networks with a solution to help businesses get into their products. Balance Sheet wise, it makes a company look stronger and they can offset the expenditures with investment tax credits, which are sure to come as the recession dips, as they did in the 70’s, 80’s and early 90s, as well as the depreciation advantages. It’s a “triple-win” for all concerned.

Offering this solution and finance vehicle for the end-user will result in more sales no doubt. Will this financial strategy succeed? Because it sounds as if the various industry associations have plenty of listings and contacts and all the White Paper sales propaganda divisions will have a field day promoting this once they learn of a solid plan, as this is solution based. A company can easily document how it saved money, saved taxes, strengthened their balance sheet and up-graded equipment (of any type in any industry) without spending anymore than they had been spending all along?

Another benefit for equipment sellers is that they lock in their customers for the term of the financial arrangement and the finance company is already paid up front or can be by simply peddling the note, contract or agreement. And it’s a really neat way to zip into a position of money that is flowing and an on-going flow. Of course, large companies can also copy this plan, using Investment Banks to carry the deal. Meaning you may wish to work with Investment Banks too, nothing wrong with UOPM. And you know there is no need to use this scheme for only tangible assets, you know you can also “commoditize” services by allowing large companies to buy little ones that provide the services already. Had you considered that too? Neat little M & A plan on a smaller scale.

This will be a very interesting new subsector in the corporate finance industry to watch indeed.

Source by Lance Winslow

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