In previous decades, many businesses valued asset ownership to the point that they would invest a lot of money and time sourcing the key resources needed for their operations. However, over time, they focused more on access to these resources than ownership. We examine why leases have become commonplace in business and how technology has further fueled this shift in priorities.
Why Are Businesses Leasing Tools Instead of Them?
While businesses still buy several assets that are core to their operations, many have now chosen to lease the capital-intensive assets for three reasons. Chief among these is cash flow preservation. When a business buys an expensive asset, it spends cash reserves that would have otherwise been used to grow its operations in research, staffing, or marketing. However, if the business leases the same asset, it spends less money on the acquisition and thus frees up working capital that can go into operating the business.
Secondly, we have the issue of operational agility, and this comes down to two key things: idleness and speciality. Let’s start with the idleness. It’s no secret that some assets are so specialised that they are only necessary for specific projects. As such, they lie idle for the rest of the time, yet the business invested capital in their acquisition. Next, we have the speciality issue. Some assets, while expensive, are not suitable for every job that comes up. However, with leasing, businesses can find the exact tool they need for the job and do not have to worry about idle time, as they can return the tools when they are not in use.
Finally, owned assets undergo depreciation and technological obsolescence, resulting in business losses. For example, a tool that may have worked two years ago may now be outdated due to rapid technological advancements, thus necessitating an upgrade. These continuous updates take time and money, which businesses can avoid by leasing the latest equipment and never worrying about outdated models.
Which Technologies Support Leasing Models?
Traditionally, leasing valuable tools was risky as the lessors had few ways to prevent and address challenges such as the misuse, loss, and theft of their equipment. But technologies have come in to fill these gaps. Take GPS, for example. It tracks the location of machines and relies on geo-fencing to ensure that the tools cannot be used outside the project area. Technologies like UWB (Ultra-Wideband) and BLE (Bluetooth Low Energy) are also helpful in measuring the location of smaller tools to ensure that they do not get lost or left behind in projects. And with sensor integration in play, lessors can review how much the lessees use the machines and charge them based on usage. They can also send maintenance alerts to the lessors to ensure they maintain the tools per their contract terms. The technologies serve as a well-oiled machine that simplifies the leasing processes to benefit the lessors and lessees.
Let’s use aircraft engine stands as an example. This costly, heavy equipment is often needed to transport and store aircraft engines. Given the versatility of the engine stands to suit each engine type, it makes more financial sense for airlines to lease these stands to account for these variations. These stands come with UWB/BLE tags and vibration sensors to help the airlines and the stand lessors monitor their locations and schedule maintenance intervals. So, with an engine stand lease, the airlines get to maintain and repair their aircraft engines, pay for the time they have used the stands, and avoid the costs and maintenance burdens of owning the actual stands.
By making leases less risky and optimising the asset lifecycle, technologies have made high-value assets available to businesses worldwide. This way, more business owners can focus on their core business operations.
