In this article about cash flow and the importance of keeping healthy cash levels in any business, I want to review a sale and leaseback agreement. I closed a loan for a customer that provides an excellent example of how to use equity in your company assets to provide a better cash position and increase cash flow. So I thought I would summarize the deal to explain how this type of transaction works. The customer has a healthy and profitable business. He provides mobile crushing and screening services for construction companies and government roadworks divisions. In six years he’s built the business to more than $1.2M in revenue. He estimates that over that time he has purchased over $1M worth of equipment as well. Because he is responsible for every part of the business, he fell behind on certain items, mainly his bookkeeping. This put him in a position where he was paying $12,000 per month on equipment loans. He also paid $1200 per month to the IRS for back taxes. He had several large contracts coming up that would take up to 90 days to collect payment. This caused a shortage of cash to move forward. One thing he did well was take care of his equipment. We did a site inspection and found all of his large equipment – which included screeners, crushers, excavators, and loaders – to be in excellent condition. Some of the equipment needed upgrades. Some of it was owned with no loan on it. We performed a valuation on his equipment and provided options for buying the equipment and leasing it back to him. I set up a sale and leaseback agreement that will pay off 3 of his current equipment loans and provide him with an additional $50,000+ in cash. We are also reducing his monthly payment by more than $5000. He now has the cash to perform the upgrades on the older equipment, thus extending their useful life, and cover the initial expenses of performing the work on his new contracts. At the end of 90-120 days he will have increased his net monthly incoming cash flow by nearly $8000. This insures a healthy liquidity position for him moving forward in addition to increasing his profits.