Maximizing ROI with Leased Transportation Equipment

Return on investment (ROI) is a performance measure companies use to assess the effectiveness of an investment in an initiative. You can calculate it by dividing the net profit from the investment by its initial cost, then multiplying the result by 100 to get a percent. The metric helps businesses ensure that they are allocating resources to the projects with the greatest potential for profit.

In the transportation industry, business analysts and leaders are continually evaluating ROI for usage of a wide range of equipment: conveyors, cranes, tractors, busses, aircraft, ships and other watercraft, trains and railroad equipment, work trucks of all sizes, and more. Transportation equipment needs extend to “green” operations, too. As transportation dealers look to electrify fleets, they need to finance equipment to effect that transition.

In some situations, purchasing and owning equipment will lead to higher ROI, but in many others, the better option is leasing. Here’s a summary of why and how transportation equipment leasing can work to maximize ROI.

1. Increases ability to manage cash flow. Leasing transportation equipment lets businesses preserve cash flow and increase liquidity by acquiring needed assets without major upfront expenditures. More cash means more ability to pursue growth initiatives when they arise, and ability to maintain a good emergency fund for unexpected expenses. Leasing also means predictable monthly payments, which facilitates budgeting.
2. Provides tax benefits. Lease payments are generally tax-deductible as operating expenses in the United States and Canada, unlike outright purchases where only depreciation is deductible. By doing so – and staying off the balance sheet – ROI improves.
3. Minimizes residual-value risk. A company that leases transportation equipment assumes no risk of depreciation, since the lessor bears the residual-value risk. Plus, businesses that lease equipment can return it to the lessor at the end of the lease, with no need to handle disposal or resale.
4. Eliminates maintenance hassle. Some transportation equipment leases cover repairs and ongoing maintenance. This helps assure minimal downtime, reduces unexpected costs and removes the time-consuming tasks of performing maintenance and repair activities. All of these help maximize efficiency of the equipment.
5. Allows companies to work with up-to-date equipment. To maintain and grow their business, many companies must be able to work with current technology and models at all times. Leasing allows them to regularly upgrade to newer or more efficient models, and those that incorporate updated components and electronics. The ability to access newer equipment also eliminates many costs associated with older equipment, and can even open the doors to more business – both of which impact ROI.
6. Increases operational flexibility. Leasing enables businesses to more easily scale and meet changing customer demand. They can increase or decrease fleet size as needed, without the need to buy or sell equipment.
7. Enables greater focus on core business. With lower initial expenses, no large capital outlay, predictable monthly costs and the absence of worries about maintenance and repairs, companies have more resources – time and money – to concentrate on their core business.

In addition, leases sometimes come with volume-based discounts, which can reduce costs (and increase ROI) over time. Businesses may also be able to negotiate flexible terms, including usage-based contracts, to help align equipment performance with cost.

Transportation equipment finance

Transportation equipment leasing can help to maximize ROI, offering improved cash flow, greater flexibility, increased efficiency and significant tax benefits. Equipment financing in the transportation industry, though, can be complex, which is where a strong finance partner comes in. Providers that serve as true partners will take the time to learn and understand your business and your goals, help you analyze ROI options in light of those goals, and then create tailored financing programs to reach the goals. Working on a relational, instead of transactional, basis, they can help determine where and when leasing is the best solution for your needs.

Mitsubishi HC Capital America is an advanced non-captive, non-bank commercial finance company with extensive experience and expertise in the transportation industry. Working with businesses throughout North America – including manufacturers, distributors and dealers – we design and implements customized financial solutions that support ROI maximization. Contact us to see how we can help with your transportation equipment financing.