Financing Options and Section 179Financing and Cash Flow are some of the most important aspects of a successful business, and are the subject of some vital decisions for new and small business owners in any industry. The custom apparel, embroidery and custom t shirt businesses are no exception.
The advantages of leasing in particular apply especially to apparel decorating equipment like embroidery machines, direct to garment printers and rhinestone machines because cash flow is so important when you’re first starting out.
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ColDesi has worked with Adia Capital as a trusted partner to both provide financing opportunities for our customers, but also to deliver sound advice about starting and operating a small business.
Cash Flow vs Cash Purchase
One school of thought for starting a small business is to start debt free. The advantage of starting a debt free business is that you have the comfort of not having to worry about making a monthly payment. If you have a bad month or it takes you some time to generate sales you don’t have the burden of a big payment at the end of the month. Once you DO start selling the money you earn goes right to you and/or the bottom line.
The drawbacks of the debt free approach to starting an embroidery business or custom t shirt business usually outweigh those advantages above, which inspires many ColDesi customers to Finance or Lease equipment instead.
- Start Faster: Better equipment = profitability |Leasing equipment usually means that you can afford more or better systems. That’s why so few people pay cash for a vehicle, for example. Let’s say that you can afford to only buy 1 single head embroidery machine in cash. You will likely be able to afford to lease 2 or more machines and use the cash as a back up to bolster you against slow months. With two embroidery machines you can literally double the about of money you can make in an hour because you can produce twice as many hats, polos, etc. So you get the advantage of having cash in the bank for safety AND doubling your potential for profit. The same goes for DTG Printers, rhinestones machines and spangle equipment.
- Avoid Big Order Failure: One of the things that kills many small businesses is getting a really big order. It sounds counterintuitive, but when you get a very large order for the first time you will have to purchase the blanks and pay for those up front, they will take some time to arrive, then you will actually produce the job, which may take weeks if you bought a single machine and it’s a very large order, then there’s delivery time and, in the end, you’ll have to wait for payment. If the job is for a public school or large company that payment may not come in for 30 to 60 days. So your cash is tied up for that entire time.. what if you get ANOTHER order? Or your car has issues? Or your equipment needs repair? If you’re leasing you’ll still have cash reserves to survive your success!
- Tax Advantages: Our leasing partners at Adia Capital can speak to you at length about this and of course you should consult a tax professional, but there are significant tax advantages of leasing equipment. There’s a reason why most very large businesses lease vehicles, copy machines and even computers and that reason may apply to your small business as well. Taxes are going to be a big part of your financial success – learn more early for more future success.
What is Section 179?
Section179 is a part of the US Tax code relating to equipment purchases and how they impact the amount of money a business will pay in taxes. Also called “Protecting Americans from Tax Hikes Act of 2015” (PATH Act), it sets a tax deduction limit in the current year to $500,000.
Section 179 can provide you with significant tax relief for this 2016 tax year, but equipment and software must be financed and in place by midnight December 31, 2016 to take advantage of it because all the numbers get reset every year.
This image is from a popular SAMPLE Section 179 tax savings estimate calculator. As you can see, your potential savings is HUGE!
You can find specific information and return on investment information for Leasing an Embroidery Machine on our Avancé website and if you’re interested in Direct to Garment Printers on Leasing a Direct to Garment Printer page. But the basics are going to be the same no matter what you buy.
Your Next Step
You have a few choices on how to move forward: