One of the barriers to starting a business is enormous, front-loaded capital outlays for equipment. Business owners can expect to face this capital expenditure (CapEx) again when equipment needs to be replaced. Equipment also incurs additional costs over time for parts, repairs and maintenance, as well as the inevitable cost of age-related underperformance.
Equipment subscriptions are a way to distribute the burden of the machine’s cost across monthly or annual installments. Like a lease, subscriptions reduce the capital required to start a business and soften the blow of equipment failure, making them a desirable choice for businesses with limited cash flow. Subscription terms may be more favorable than traditional leases, which often charge egregious interest rates and do not include service on the unit.
Subscriptions have already revolutionized business balance sheets. SaaS, or Software as a Service, is the most well-known business subscription type. SaaS enables business owners to access expensive software they need by paying monthly, rather than spending up front for pricey boxed solutions that aren’t scalable and may present security issues. As of 2021, the SaaS industry is worth $152 billion.
There’s another key benefit to SaaS or equipment subscriptions. When an asset, such as machinery, is purchased, it is a capital expenditure. When a similar asset is attained through a subscription, it can be considered an operating expense (OpEx), which is tax-deductible from the business’s income.
Taking ice machines as an equipment example, a restauranteur may spend thousands to buy a commercial ice machine. After purchase, the countdown is on until the ice maker needs preventive maintenance, cleaning, filter replacements and small repairs, or until a major breakdown temporarily stops the unit (and ice supply). Mechanical issues aside, the asset cannot be upgraded or changed no matter how the business’s needs grow or shift.
If the owner leases an ice maker, the initial outlay is avoided, and monthly payments for the unit may be tax-deductible OpEx costs. However, costs for maintenance and repairs and the manhours required to coordinate them still loom. If the owner signs up for a full-service ice maker subscription, such as what we offer at EasyIce, he or she experiences all the benefits of a lease and offloads the hassles of cleaning, service and preventive maintenance, back-up ice and more. Plus, the ice machine can be upgraded to a larger or different style if business needs evolve.
Equipment subscriptions offer businesses more flexibility and predictability, less risk and additional OpEx tax deductions.
John Mahlmeister is the chief operating officer and co-founder of Easy Ice, co-headquartered in Phoenix, Ariz., and Marquette, Mich., the national leader in the full-service ice machine subscription industry.
