Leasing Broadcast Equipment

Many people think the word leasing means lack of ownership, high interest rates or something akin to a rental with no end of term purchase option. However capital leases offer a fixed end of term purchase and a high percentage of capital leases offer a $1.00 buy out. Other types of capital leases offer a fixed purchase of 10% , 20% or 30% of the original purchase price however in those cases reputable lessors amortize only 90%, 80% or 70% of the cost of the equipment resulting in lower payments. not unlike a stand term loan with a "cap reduction" (down payment). There are other types of leases, of course. True Leases are also known as Fair Market Value Leases. They often afford lower payments and offer the lessee options at the end of term including; return the equipment, extend the lease, or purchase the equipment for its, then, fair market value. Operating Leases are a special type of lease in which the lessor invests sufficient equipment in the equipment to meet a "90% test" that qualifies the lease in the eyes of the Internal Revenue Service and the accounting standards board. In addition other criteria must be met including non-transfer of ownership, and the absence of a "bargain purchase option". Broadcasters should explore and discuss various types of lease options to insure that the type of lease chosen meets the financial and accounting objectives of the station.

Match Technology Financing To The Utility of The Asset

While it is sometimes tempting to fold all costs into a five or seven year financing, in order to achieve a budget or cash flow objective, it is important to reflect on the various nature of different costs inherent in a broadcast systems integration project. For instance it may make sense to finance an HD transmitter for 10 years, a console for 7 years, station automation technology for 5 years and software for 3 years. You may also want to include all systems integration costs such as delivery, labor, installation, warranty and services. But try to avoid financing costs or expenses that will be repeated during the financing period. Match your financing to the utility of your equipment, technology and systems.

Specialized Financing For Radio Station Owners & Broadcasters

Many radio station owners of groups or singles stations tell me that their bank or other financing source just doesn't understand the broadcasting business. Radio stations are often highly leveraged and revenues are generated through ad sales. Advertisers come and go and are dependent on local or regional economies. Certain ad spots are geared to seasonal promotions while others ebb and flow with political campaigns. Small market stations often struggle to compete with larger corporate broadcasters who dominate the airwaves. When broadcasters and station owners choose to invest in upgrading their facilities replacing broadcast technologies or expanding their group of stations it is often critical to have financing that fits the needs of the broadcaster (vs. the needs of the lender). Finding lenders who specialize in broadcast technology and radio station financials is key to achieving budget and cash flow solutions that fit the dynamics of the respective broadcaster's business. Sometimes smaller local banks "get it" and can become a good "friend" to radio. More often than not the radio station owner has few comparative choices for financing. When considering equipment or technology financing for your station seek out proposals from two or more competing sources that have an understanding of the radio station business and who know the technology. Negotiating good financing with a reputable lender will pay "dividends" in terms of limiting interest earnings and, perhaps more importantly, getting the right transaction structure that meets your station's specific needs and objectives.

An Operating Budget Solution to a Capital Budget Problem

Financing is often called an operating budget solution to a capital budget problem because it allows for the payment of equipment, technology or systems out of the monthly cash flow of the business, broadcaster, or media related firm. A capital budget offers a point in time plan to fund a specific purchase such as a transmitter, a camera, a switcher, or some other type of broadcast, lighting, sound or media technology. An Operating budget is more fluid and considers the ebb and flow of income the way it occurs naturally in a business, studio, station, production facility, stadium, concert hall, etc. Capital budgets are effective for planning regular (especially current or next year) expenditures such as the systematic costs that come with people, salaries, benefits, the purchase of bulk goods, the acquisition of another enterprise, the steady need for certain supplies or materials used in the business. However Operating budgets are effective for planning and allocating funding and payments for technology that produces income, creates savings or otherwise can be amortized over an extended period of time beyond the one year Capital budgeting cycle. Many firms now choose to allocate capital budget funding for current year or next year costs while utilizing the Operating Budget to allocate funding for equipment, systems and technology that has a multiple year useful life or that depreciates over an extended period of time. Larger companies with multiple stations often control the capital budget at corporate headquarters while allocating an annual Operating Budget to the local station General Manager, or Chief Engineer. Consider Operating Budgets as a means to "spread the cost of technology to match the timing of revenues and cash flow.