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How do equipment leases affect the value of my business?

What terms of the equipment lease should be reviewed prior to a sale?

Equipment Leases

Posted by Jeff Muir on 8 June 2016 | Comments

Equipment leasing can be an attractive alternative to purchase, especially for office equipment and other items that lose value quickly.  Managing equipment lease obligations in the years leading up to a sale can help facilitate a more efficient business sale.

However leases should be reviewed for their ability to be transferred.  Many operating and capital purchase leases are not transferrable, and thus a seller may have pay off the lease with the sale rather than transfer the obligation as part of the deal.  This means that the seller will be paying the interest charge on the financing even with an early payout.  Often traditional financing is more appropriate in the years leading up to a sale.

Maintaining a schedule of lease payments, terms and maturity dates will enable the buyer and their advisors to quickly determine the effect of the leases on the long term value of the business.  It is also important to maintain a file of all of the agreements associated with any outstanding leases so they can be made readily available to the buyer during due diligence.

 

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