The Electric Lease
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The Electric Lease

An Unexplored Profit Circuit

By SignIndustry.com Staff

If want to make more profit from the electric signs you build, you should look beyond simply building better signs with better features. Running common advertising campaigns also will help you sell more signs. Yes, these methods might get you a few dazzled customers. But once the rush is over, your business may eventually settle back to its original profit plateau.

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  • Don't get discouraged. Think of leasing electric signs as a method for creating more profit for your business. You just need to stop following the common circuit of those sign makers who simply sell signs. They are unwilling to take risks and thoroughly research other paths to success. Take the circuit less-traveled. Not only will it be less crowded, but also may offer unexpected benefit of increased long-term profit.

    If you yourself lease a vehicle or office equipment such as a copy machine, you understand the basic concept of a lease agreement, and you are familiar with the customer benefits one receives from leasing a product instead of buying it. You get to drive a new dependable vehicle or use a quality piece of equipment otherwise unaffordable to you. Worries about costly maintenance and repairs do not haunt you. And you can write off the monthly payments as a business expense.

    Most of your customers are also familiar with leasing. Leasing vehicles and equipment is a common practice. Why not take advantage of that familiarity and introduce them to the idea of their leasing your electric signs? But, you ask, "Why would I want to offer a leasing option instead of simply requiring an outright purchase of my signs? Why not just get all the money up front?"

    More money. If they lease your electric signs, you could, in the long run, make up to twice the amount of profit by leasing rather than selling them outright. Over the term of the lease, customers are paying for a sign that your shop owns. Eventually, the sign gets paid off, but the money keeps rolling in. Then, when the lease period ends, you can give your customer the option of buying the sign or renewing the lease agreement. Even if you the lower monthly payment for the older sign, you will be making good money. Either with the purchase option or the lease extension, your business wins.

    Along with covering your costs for building the sign and providing a profit equal to or exceeding the outright sales mark-up, the lease agreement can offer you other sources of income. Include maintenance and insurance options to the customer's lease agreement. That means more profit with each monthly payment.

    The added monthly service fee covers the cost of preventative maintenance and minor repairs. Sell the service fee as protection for the customers. You will regularly maintain the sign. Because it is maintained, cleaned, and checked regularly, the sign will always be working for the customers. You also are being paid to maintain your own property.

    You will want also to include a charge for insurance coverage in the lease agreement. By keeping the money from the maintenance service fees and the insurance fees in a separate account, you will have a cash reserve for repairing or replacing the electric sign in case of vandalism, accident, or natural disaster. You are being paid to protect your own property.

    Be sure to get full-market value for leasing your signs. Don't be bashful. You are providing a vital ingredient for your customers' business success. You bought the materials, built the sign, installed it, will maintain it, and will ensure (and insure) its presence. And remember that customers don't pay the lump sum at once up front: it is so much a month over so many months.

    Leasing can go on and on. As long as your customers stay in business, they will need your sign. Their success means more profit for you. Leasing is an income you can count on even when there is a lull in the new sign sales.

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    Also, when thinking about leasing electric signs, consider the irresistible tax breaks for the life of the sign. For example, when your customers either buy or lease a sign, you may need to borrow the capital funds for building and installing the sign. Long after the sale, you could be paying off the debt plus interest. In a carefully planned leasing situation, however, the customers' monthly payments should cover the cost of loan as well as provide a steady profit.

    Not only will you charge your customer for the price of the sign after its mark up, you will also charge a financing fee. Typically, the interest rate you attach to the sign's lease should be two percent above what you are paying your lender. Plus you get to amortize the cost of materials and interest over the life of the lease.

    Remember, when you are leasing electric signs, you are still the owner. The sign is an asset. Its value will depreciate over the term of the lease. And so your taxable income lessens when you subtract that depreciation. The more signs you are leasing the more depreciation you will be able to account for. And, to put the icing on the cake, your company will fall into a lower tax bracket. In fact, it is possible to actually find your tax benefits equaling or exceeding your taxable profits.

    To continuously take advantage of these perks you may want to have a renewal-only policy in your business's lease contract. This guarantees a long-term relationship between you and the customer. A renewal-only policy also assures that the sign will always remain the property of your company. Therefore you can collect tax benefits for as long as you are able to depreciate the sign.

    Clearly, if done properly, electric sign leasing can be provide your shop a predictable steady income. With a considerable number of leasing customers, you can enjoy a guaranteed monthly income. You will sleep better without having to worry about long lulls in sales, aggressive competitors, and economic ups and downs. Leasing affords you confidence.

    But do your homework. Talk with your banker, your accountant, and your lawyer. Get all your questions concerning leases answered. You can also get a lot of valuable information and sample lease contracts from other sign companies that are not in your market area.

    Learn all the options you could possibly include in your lease contract. Success will only result from a well-researched and well-written business plan. This includes a lease contract written and/or revised by an attorney that complies with all your local laws concerning leasing, taxes, and sign placement.

    Also you will want to consider the possible methods of funding the cost of building the signs. Will you need to borrow the money? Or do you have enough surplus capital to fund the building of leased signs?

    Once you have capital funding and a good lease contract, you can market the leasing option from your shop. Be sure to know as much as possible about possible clients. You want customers who will fulfill the lease agreement for the life of the agreement.

    Starting a leasing program at your sign business is obviously not initially an easy route to follow to increased profit. But, if you are careful and determined, you can be wired for long-term success and profit.

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