Equipment Leasing and Lease Accounting for Rental Companies

In our recent podcast, we discussed why being nimble and quick is fundamental for today’s competitive businesses. One emerging trend in asset-based businesses is leasing equipment to customers versus selling, or leasing equipment versus buying it outright.

Managing Lease Accounting

ASC842 and FASB rules ensure that both your Balance Sheet and P&L properly reflect the values and liabilities of leases on both sides. These rules are somewhat complicated and require accurate bookkeeping, which is why many smaller businesses shy away from these arrangements. Further complicating matters, each lease type has different rules, and each agreement must properly conform to these rules.

Three Key Lease Categories:

1. Operating Leases – You do not own the equipment; you are essentially renting it with predetermined rules for acquiring it at the end of the lease it if you choose
2. Finance Leases – You own the equipment, but pay principal and interest over time rather than all cash up front
3. Fair Market Value (FMV) Leases – Similar to Financing but with different accounting, including tracking Right-of-Use (ROU) Assets

There are pros and cons to each type, so you must be careful to choose the right type in order to maximize the return. But the complexity with leases doesn’t have to be a deterrent. Properly implemented, there is additional income to be made, and likely more ‘sales’, by providing leasing options to your customers. There may be a better use of cash when leasing some of your equipment from a lessor. The financial benefits are clearly there, but you will need a system to help manage it.

Want to see exactly how we make this simple? Check out our interactive demo that walks through our leasing functionality step-by-step.

Fame Rental’s Integrated Approach

Fame Rental contains functionality for both leasing scenarios (leasing to your customers or leasing from a vendor) and manages the accounting throughout the transactions’ lifecycles. And, because Fame Rental is an asset-centric ERP, everything is tracked back to the individual asset, so reporting and analysis are consistent and comprehensive.

A good example is when calculating the Return on Assets (ROA) for a specific unit. Knowing the interest income and/or expense each month for that asset affects its ROA, but it’s challenging to include if a leasing application is external or disconnected. Fame makes it all come together neatly and accurately.

Compete More Effectively

If you’re going to compete in today’s market, you have to do more without the overhead. A good asset-centric rental management ERP will minimize that overhead, freeing you to do more. That is being nimble – serving your customers in ways that benefit them the most.  

Comprehensive Asset Management

For any rental company, comprehensive asset management must include all options for acquiring equipment, generating income, disposing of equipment, taking proper depreciation, tracking maintenance costs, and recognizing interest expense or revenue. Fame Rental is the only rental management system that does all of this and more, which enables you to make far better decisions and maximize your ROA.  

More and more companies are turning to leases to grow their business.  With Fame Rental, you can be a leader in this trend – both serving your customers and managing your cash better, knowing that you are in full compliance and operating with minimal overhead.

Joe Lewis
CEO
Fame Rental

Fame Rental improves rental businesses and the lives of their employees and customers. We do this because we care more deeply, listen more intently, and act more methodically than anyone in the rental industry would ever expect from a software company.

Contact us at sales@fameintel.com to schedule a demo.