When looking to lease or finance equipment, there are four calculations you can use to determine your financial health and ability to afford the equipment.
- Breakeven: This calculation determines how much work the equipment will need to do in order to see a return on your investment.
fixed costs / (selling price – variable costs) = breakeven
- Depreciation: Calculating depreciation helps evaluate the worth of the equipment by considering its years of usefulness. You’ll need to know the initial cost, residual value (what the equipment will be worth after it has reached its max number of useful years), and years of usefulness.
(initial cost – residual cost) / years of usefulness = depreciation
- Gross profit: By calculating gross profit, you can get a good look at how your business is doing financially. This number is often used by financing companies to quickly see a business’ success.
gross sales – cost of goods sold = gross profit
- Cash flow: Cash flow is used to compare the available cash at the beginning of a time period to the cash available at the end. Equipment financing companies use this to evaluate a business’ financial health. Cash flow can be trickier to determine, so it’s advisable to consult your accountant.
—Beacon Funding
