Leasing and Financing Can Work to Your Advantage in an Inflationary Economy

Everyone has their eyes on the state of the economy. With the inflation rate reaching 8.52% in July and pandemic-related slowdowns continuing to affect the supply chain, people are feeling the squeeze just as they’re looking to resume their pre-COVID lives.

MIKE HENDERSON, WHITNEY JONES, & BILL PITCAIRN
CoreTech

Law firms are no exception. Many organizations are competing for a limited number of services, which drives prices up even further. In fact, overhead expenses — such as support staff compensation, knowledge management and library services — have all grown at modest rates, while technology spending is up by 8% — one of the fastest growths the Law Firm Financial Index (LFFI) has tracked since 2014.

Fortunately, there is a way to counter some of those spending increases — leasing and financing.

LOCKING IN RATES AS COSTS INCREASE

As the Federal Reserve increases borrowing rates to combat inflation, leasing the equipment your business needs may make more sense than ever.

Primarily, leasing means fixed — not adjustable — monthly payments, converting a firm’s equipment and project costs into an affordable monthly expense. As rates increase, leasing and financing lock an organization into lower rates, saving the firm money over time. Leasing allows the firm the flexibility to reset and order required technology and equipment, providing time for the supply chain strain to ease.

Leasing means no down payment, leaving more cash available to move to better-performing investment options that should follow the Federal Reserve rate increases. Leasing also requires smaller, fixed monthly payments to help guard your cash flow if your money borrowed with a variable rate of interest becomes more costly. Material residuals invested into laptops and other hardware also help to decrease the cost of equipment that has a limited lifespan.

INCREASE YOUR OPTIONS AND PURCHASING POWER

Banks are in the process of cutting back some of their lines of credit as a response to the economy. Some firms may be in for a surprise, but an independent lessor may have access to a variety of bank funding types and can use those choices to create the best financial solution that aligns with the firm’s business objectives.

Inflation reduces purchasing power over time. A key selling point of financing is that it affords clients the opportunity to pay for equipment in future dollars using current interest rates, whose value would be reduced by the effects of inflation, creating an effective hedge against inflation.

Equipment leases follow fixed monthly payments (in dollar amounts or in percentages), shielding law firms from currency fluctuations and market inflation.

MATCH PAYMENTS TO USEFUL LIFE

Leasing and financing help ensure the firm has the right technology for the right amount of time and can be customized to match payments to its useful life. Technology is now mission critical to your firm’s efficient and productive delivery of legal services. With these positive changes in the use of technology come certain challenges:

Law firms are faced with increasing pressures from both corporate and private clients when it comes to cybersecurity and proof of an asset management system or strategy.
Decreasing the useful life of the technology and equipment the firms have come to rely on to compete, adapt and succeed means refreshing the fleet more often, which can be operationally challenging.

As part of the solution, your firm should put together a workable disposition plan combined with a technology refresh mechanism that will protect the firm from keeping outdated equipment in use that doesn’t adhere to new and increasingly high-security standards. A refresh cycle — tailored to the firm’s needs — streamlines operations and keeps the firm on a fixed monthly payment while ensuring attorneys’ devices are up to date.

Mental Health First Aid Certification Program

GET A HIGHER TAX DEDUCTION

With owned equipment, firms are allowed to deduct depreciation and interest expenses from their taxable income, but not the principal payments. With a capital lease, firms can deduct the entire lease payment as an expense, which will allow firms to write off expenses quicker. This shorter period means a larger deduction each year, lowering your taxable income and decreasing your taxes. It’s good to note that for 2022:

The deduction limit for Section 179 is $1,080,000 in 2022 — up from $1,050,000 in 2021.
The 2022 Section 179 deduction threshold for total amount of equipment that can be purchased is $2,700,000.

ASSET MANAGEMENT IMPROVES SECURITY AND CUTS IT COSTS

Leasing goes hand in hand with security protocol number one: always know where your assets are. Clients and insurance companies are upping their game when it comes to auditing their law firms’ security protocols. Firms must do everything that is required to keep their systems secure and facilitate auditing processes. But sometimes asset management can be overlooked. For example, when a firm states to its clients or insurance company that it is secure, the location of all the firms’ devices may not be known or stand up to the scrutiny of an audit.

“As rates increase, leasing and financing lock an organization into lower rates, saving the firm money over time. Leasing allows the firm the flexibility to reset and order required technology and equipment, providing time for the supply chain strain to ease.”

Leasing and financing come with asset management that further enhance a firm’s security efforts and increase personal responsibility over issued devices to protect the firm and its clients, all while reducing costs.

With modern asset management, IT knows in real time the location and chain of ownership tied to any piece of equipment. Finance can manage all contract expirations and lease language from a single place, putting them in an optimal position to proactively manage terms and conditions, reduce costs and benefit from converting most of their IT budgets into a fixed monthly expense.

While this is a picture of the economy now, the only thing we know with certainty is that things will continue to change as we meet the challenges laid before us. Ensuring the firm has financial and operational flexibility, a continuously up-to-date technology fleet to improve security and mobile asset management to manage it all are the tools needed to compete successfully moving forward — and leasing is the financial strategy that will help you get there.

About the Authors

Mike Henderson is the Regional Manager at CoreTech. He brings over two decades of knowledge capital and dedicated experience in the high-tech corporate leasing industry.
Email
Website

Whitney Jones (Morris) is a Senior Account Executive at CoreTech. She has nearly a decade of expertise and a demonstrated passion for technology and equipment finance in the legal industry.
Email
Website

Bill Pitcairn is a Senior Account Manager with CoreTech. He has a distinguished track record in the finance industry, leading all facets of sales functions with an emphasis on strategic planning and revenue growth.
Email
Website