My Customers Don’t Lease

Being in the equipment leasing industry for a number of years, I cannot tell you how many times I have heard business owners, sales managers, and sales representatives make the comment, “My customers don’t lease!”. I will then follow up with the question, “How do you know that?”. The answer is most often something like, “It never comes up”, or “They never ask for it”.

Well the truth of the matter is, the reason they don’t ask for it is quite simply that they do not know that a lease option is available, or they just don’t think of it. If you don’t ask you don’t know…

Most companies lease something!

A photocopier, their premises, vehicles, or some piece of equipment where a monthly payment option was provided in the sales process. In fact, all types of organizations lease equipment. Small and large, public and private, and profit and non-profit, and governments and related organizations such as hospitals, school boards, and municipalities. If that is the case, there is no reason that they would not consider leasing the equipment you are selling.

You can’t assume that a prospect does not lease or would not lease, given the opportunity to do so. No one has ever lost a sale by providing a lease payment, but you have to ask yourself, how many sales have been lost by not making the monthly option available. It takes very little time, and costs nothing to incorporate a monthly payment into a sales presentation or quotation, however, doing so can a substantial impact on sales.

Think about this…

If you only provide the customer with the outright purchase price, his or her options are limited to buying or not buying the product. If they choose to purchase, they have to determine how they are going to pay for the equipment.

• Will it come out of cash flow, where it will tie up working capital?

• Will they draw off of their line of credit, which may require approval by their bank?

• Do they have to approach their bank for a term loan or attempt to request a higher line of credit limit?

These are hidden objections which are not often shared with a sales person. By offering a lease option, you are solving these problems for the customer, and in effect creating a new credit facility for them.

In addition, a monthly payment is likely considered to be an operating expense and can often be approved at a lower level within the organization. On the other hand, an outright purchase is likely to fall within the capital budget, which generally has a longer approval process.

By managing the financing aspect of the acquisition, you as a sales person is actually controlling the sales process. How often has we left a quotation in the hands of a customer, thinking the sale has been made, then for no apparent reason, they change their mind. Usually, this has something to do with money.

Finally, after you have completely answered all objections about your product, leasing can be an effective closing tool as it provides you with powerful closing statements.

For example…

“Mr. Customer, based on conversation, I believe that our ABC widget will save you the time and money it is designed to do. Would you agree? If the answer is no, ask more questions about the concerns with the product and handle the objections. If the answer is Yes, use a closing statement like “Mr. Customer, that just leaves the question of your investment in the product. We discussed a purchase price of $23,167, or a monthly payment of $791 per month. Which would you prefer?” On the other hand, if the customer has committed to lease option, a great closing question would be, “Mr. Customer, would you like us to prepare the documents on a 3-year term at $791 per month or do you prefer the lower payment of $612 per month over a 4-year period?

In summary, leasing is a time tested and proven method of increasing sales. It is simple to implement and the results can be astounding. No matter what product you sell, or what industry you are in, leasing will help your business grow.

Cash Flow Tailored Lease To Make The Sale

A few years ago, I developed a relationship with a vendor of specialized point of sale equipment, who had not effectively incorporated the use of leasing as a tool to help their clients overcome budget constraints.

One day I was speaking with a sales representative, Paul, over a cup of coffee and asked my usual question, “How’s business?” After crying the blues and blaming everyone but himself for his poor sales results, told me that he wanted out of sales, and felt he was better suited for a job which would provide him with a regular pay check.

Feeling his frustration, I then asked Paul what attracted him to sales, and whether he really, deep down, wanted to leave the profession. He responded by telling me that he enjoyed the freedom, the potential to a lot of money, and more importantly, the tremendous sense of satisfaction he received by making a sale. And then proceeded to say that he really did not want to pack it in.

Having been involved with sales people for a number of years, I offered to take him under my wing and work closely with him for the next month.

My intent was to condition him to start using leasing proactively, and show him how it can be used to close sales. The first thing I asked him to do was to generate a list of “sitting tight” prospects-you know, the ones that were in thinking mode or putting the purchase on hold for a future date. The second thing I asked him to do was to start making appointments with these companies where I would accompany him on the sales call. I gave him one week to do this and get back to me.

Three days later, Paul called saying that he had set an appointment on Tuesday at 10:00 AM with the owner of a company where he had previously provided a quote for 10 systems totaling $280,000. He proceeded to tell me that we are probably wasting our time as he will not be purchasing any point of sales equipment until next year.

The company was a retailer which sold female beauty supplies including specialty soaps, body washes, and other skin care products. The company had 10 locations throughout Western Canada, and wanted to replace their current antiquated system. It was September, Christmas season was coming up, and the client made a decision to put the acquisition on hold until the next year.

So, we met with the client and his opening statement was, “I don’t know why we are meeting again. I thought I made it clear that I am not going to proceed until next year”. I looked over at my protege’ and saw an I told you so smirk on his face, however, the prospect’s comment was music to my ears. I knew that we had a lot of digging to do, however, and with the right strategy and questions, we could quite probably turn this into a sale this year not next year.

I took control and began asking questions.

Here’s how the conversation went…

Me: “So how long have you been looking at replacing your current POS system?”

Client: “About six months.”

Me: “Sounds like you have invested a lot of time in the process.”

Client: “I sure have. I have met with a number of vendors and it is not easy doing a full analysis of the various products available.”

Me: “Have you chosen a vendor or are you still looking at the specifications of more than one product?”

Client: “No, I’m definitely going with Paul’s product, but as I told him, I’m not doing anything until next year.”

Me: “I see. What is your reason for upgrading your current system?”

Client: “We carry a vast number of products, and our current system cannot handle the amount of small ticket inventory. Paul’s system will allow me to better manage ordering procedures, and tell me what items are not moving.”

Me: “Are you telling me that there would be a substantial cost saving, by installing the new system.”

Client: “Absolutely. It is now September, and I just don’t think it is feasible to have it up and running, with the staff fully trained in time for the Christmas season, which by the way begins in early November. I wish I had of started sooner in the year.”

Me: “Paul, is it feasible to have your system fully operational with the staff trained by November 1st.”

Paul: “Absolutely! We have a dedicated team of service technicians and customer support trainers in all of the locations through Western Canada. In addition, we will assign a specific IT specialist to the project who will be available 24/7.”

Me: “It seems clear to me that Paul can meet your deadline and in fact will go there extra mile to ensure that the transition will be seamless. Do you have any reason to doubt him?”

Client: “No. I have checked their references and they seem to deliver on what they commit to. $280,000 is a lot of money you know.”

Me: “I recognize that, however, you did state that there would be substantial savings by replacing your current system.”

Client: “Yes, there are, however, we opened three new stores this year, and I’ not too keen on approaching my bank again for a loan or extension of my line of credit. To be prepared for the Christmas season, I have to use my line to by a massive amount of inventory.”

Me: “If we were to set you up on a 4-year lease at about $7,300 per month, would you be prepared to move ahead and have the new system up and running by November 1st?

Client: I really prefer to own my equipment.”

Me: “With due respect, if a purchase is secured by a bank loan or line of credit, you really do not own the equipment. With a lease, you are in effect creating a separate credit facility outside of your conventional banking relationship. In addition, the lease payments are fully tax deductible.”

Client: “In this business, 70% of my revenues are generated in November and December, and with a lease, I would be stuck with that $7,300 payment for the entire year. In months where my revenues are low.”

Me: “I appreciate that, and in fact you are not unique. We have many clients in similar situations, and have addressed the situations by providing what we call cash flow tailored leases. I we could provide you with a lease where 70% of your payments were made in November and December, and the remaining 30% were spread throughout the remainder of the year, would you be willing to to move ahead with the new equipment today, rather than waiting until next year?”

Client: “You can do that?”

Me: “Absolutely.”

Client: “Sure. I think that would work.”

Me: “In that case, I will prepare some exact numbers for you and come back this afternoon in order to get some credit information as well as your current financial statements. In the meantime, Paul will prepare his documentation, and we will get the order placed.”

Client: “Sounds great. Can you be back here around 2:00? I’ll have my information ready for you.”

Me: “Perfect. See you then.”

There you have it!

A Win-Win-Win situation. Paul got the sale, the client got the much needed point of sale system sooner rather than later, and not to mention, I got the lease

Why was this sale made?

First of all, Paul the sales representative was willing to walk away from the sale today, and wait until next year. He failed to realize that the opportunity was still there, however, he was not aware of the tools and resources available to him to be able to close the sale today. As with many prospects, the client hid the real objection. In this case, the real objection was financial in nature, and due to the expansion during the year, he was reluctant to approach his bank again.

By bringing in a leasing specialist, Paul was able add a new dynamic to the sales process, and ultimately solve the financial issue for his client. This particular situation involved a great deal of creativity in order to firstly identify the needs of the client, and secondly, present a solution which closed the sale.

Naturally a sales representative like Paul would not be expected to have the same level of knowledge as a leasing specialist, however, in order to be properly equipped, should have an awareness of what type of leasing flexibility is available.

This provides an excellent example of how leasing can be used to control and close a sale. Be sure to involve Keltex Financial early in the sales process, and let us help you.

Lease What Depreciates – Buy What Appreciates

Many years ago, the great John Paul Getty, who at one time held the title of being the riches man in the world, made the statement, “Lease What Depreciates – Buy what Appreciates”, as a basic philosophy that prudent businesses should follow. Most of us in the leasing industry keep the statement in our arsenal as a method of convincing companies to lease their equipment.

But What Does It Really Mean? Let’s dissect the statement into its two components and discuss why it make total sense.

Firstly, “Buy What Appreciates” simply put, means owning assets which increase in value. Prudent business people generally live by the Rule of Increase which relates to continual growth. Growth in revenues, growth in company size, and growth in net worth.

Very few assets which are revenue producing, and contribute to the growth of a company, appreciate in value. For example, a piece of production equipment costing $100,000 today, may only be worth $60,000 or $70,000 a year from now. The equipment may, in fact, reduce costs by 20%, and increase efficiency by 30%, however, if purchased outright, will actually reduce the net worth of the company over time.

Assets are depreciated at a pre-set rate ranging anywhere from 10% to 50%, depending upon which class they fall within. In year 1, the amount of depreciation falls under the 50% rule which means that only one half of the depreciation can be used as an expense. The net effect is a very slow write off for tax purposes, and an erosion of the net worth of the company over time.

Secondly, “Lease What Depreciates”, refers to shifting the ownership of any asset which decreases in value over time to a 3rd party, otherwise known as a leasing company. From an accounting point of view, leased equipment is considered a form of off-balance sheet financing meaning that it does not appear as a liability on the balance sheet. This accelerates the tax effect of a lease, as, if the lease is structured properly, the payments are considered an expense and are written off 100% from day 1. Off-balance sheet financing has the effect of improving financial ratios such as debt to equity, as the debt is not included on the balance sheet.

The business model of most leasing companies is one which is driven by adding multiple assets to the financial statements, thus being focused on huge depreciation expenses. Leasing companies thrive on adding assets to their books, and in turn fill a great need for organizations acquiring assets.

One final note. Many companies have a strong propensity to own equipment – some sort of pride in ownership. It must be pointed out that if an equipment acquisition is secured by a bank loan or a line of credit, they truly do not own the equipment until the final payment is made. They do, in fact hold title to the equipment, and show the depreciated value as an asset, but the equipment is not owned until the loan is paid out in full.

Will companies acquire equipment using a loan? Absolutely. Will companies use leasing as a means of equipment acquisition? Absolutely. The purpose of this article is to take a closer look at the statement made by Mr. Getty many years ago, “Lease What Depreciates – Buy what Appreciates”, and look at ways of acquiring equipment from a different perspective.