OK, There's no such thing as too much, but here's my problem. My modest, suffering, small buisness has just dropped a new venture in my lap and for the first time I am dealing with large sums of money.

Background - We build cedar saunas and hot tubs in Northern Ontario. We start with raw logs, mill the lumber, dry the lumber and build the product. About 6 months ago, we met a gentleman at a trade show who showed moderate interest in our products, but when we told him about producing our own lumber, he got very excited. Over the next few months, we threw pricing/shipping/volume/ and other details back and forth, until last week he placed an order. The order comes to a bit under $5,000,000 over the next year, with a potential for growth we estimate at $250,000,000 over the next 5 years.
The new sawmill has been incorporated with three equal partners, myself, my sauna company partner, and the gentleman we lease our facility from. We included the third partner for many reasons, but mainly because he has extensive experience in forest products, and is accustomed to big buisness.

We have a facility that is more than sufficient, but we do need to upgrade our mill and purchase large volumes of raw material in order to meet the demand, so knowing this we negotiated a 25% deposit on the deal and are now ready to move forward. So now we have money, what's next?

We have enough to do the upgrades, and get everything well underway. We can start producing very quickly and therefore start getting paid very quickly. As far as my original partner and I are concerned, we are ready to go. Enter partner three. He believes that we should be using the money we have now to negotiate loans and leases, and play the game. Now we're not so sure that it was a good idea to include someone who knows how to play these games.

We don't need more than we have... so why would we want to pay interest on something we don't need? His reply is "get it when you don't need it because you can't get it when you do need it".

It does make some degree of sense because we have been there before (can't get it when you need it), but honestly, is this a standard way of doing business? Are we thinking like lumberjacks when we should be thinking like businessmen?

Rob,

Sudden growth could have seriously bad implications if not managed properly. Are you looking for consultance? If yes, I could recommed someone.

Been there- done that

There is an old rule of business my Grandfather(Banker) taught me, "Use your money as a tool, but always use someone else's money to grow. There is alot of wisdom in what he said....

You have a phenomenal amount of clout while you have the money in hand, but should you use it up you are back to ground zero. By playing the game a bit you will gain in tax ramifications and many of the benefits that come with lease verses own. I have bought and sold three companies, lease may sound expensive but... properly done does offer benefits like SERVICE, DEDUCTIBILITY, NEWER, BETTER, FASTER, etc. Let a TAX attn'y go over the ramifications with you, only because you get two perspectives at once not just one. Then stop thinking like a lumberjack, and before you truly upgrade, let a production engineer or industrial engineer go over your "shop" plan...It will be well worth the money paid for consultation.

Good luck----although you seem not to need it...

Jonathan

Well said Johnanthan.

What are the Benefits of Leasing?
Leasing offers numerous advantages over other financing methods:
• Tax treatment. The IRS does not consider an operating lease to be a purchase, but rather a tax-deductible overhead expense. Therefore, you can deduct the lease payments from your corporate income.
• Balance sheet management. Because an operating lease is not considered a long-term debt or liability, it does not appear as debt on your financial statement, thus making you more attractive to traditional lenders when you need them.
• 100 percent financing. With leasing, there is very little money down - perhaps only the first and last month's payment are due at the time of the lease. Since a lease does not require a down payment, it is equivalent to 100 percent financing. That means that you will have more money to invest in revenue-generating activities.
• Immediate write-off of the dollars spent. Leasing payments are treated as expenses on a company's balance sheet; therefore, equipment does not have to be depreciated over five to seven years.
• Flexibility. As your business grows and your needs change, you can add or upgrade at any point during the lease term through add-on or master leases. If you anticipate growth, be sure to negotiate that option when you structure your lease program. You also have the option to include installation, maintenance and other services, if needed.
• Customized solutions. A variety of leasing products is available, allowing you to tailor a program to fit your month-to-month or year-to-year cash flow needs. You are able to customize a program to address your needs and requirements - cash flow, budget, transaction structure, cyclical fluctuations, etc. Some leases allow you, for example, to miss one or more payment without a penalty, an important feature for seasonal businesses.
• Asset management. A lease provides the use of equipment for specific periods of time at fixed payments. The lessor assumes and manages the risk of equipment ownership. At the end of the lease, the lessor is responsible for the disposition of the asset.
• Upgraded technology. If the nature of your industry demands that you have the latest technology, a short-term operating lease can help you get the equipment and keep your cash. Lease equipment that you expect to depreciate quickly. Your risk of getting caught with obsolete equipment is lower because you can upgrade or add equipment to meet your ever-changing needs.
• Speed. Leasing can allow you to respond quickly to new opportunities with minimal documentation and red tape. Many leasing companies can approve your application within one or two days and you can have your equipment very quickly.
• Improved cash forecasting. By leasing equipment you know the amount and number of lease payments over the life of the leasing period, so you can accurately forecast cash requirements for your equipment.
• Flexible end of term options. There are several options for disposing of equipment after the lease term ends including returning the equipment, renewing the lease or purchasing the equipment.
• Tax benefits. Lessors often pass the tax benefits of ownership on to the lessee in the form of lower monthly payments.


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Hello, This s exactly what my firm does. So, email me your contact information and I will send you our company profile and set up a conference call.
Best Regards,