Cash flow can be improved while managing the balance sheet and cash reserves.

How does a sale leaseback work exactly?

Great question.

In a sale-leaseback, a company sells some or all of its capital equipment and immediately leases it back.

As such, a sale-leaseback provides companies with a cash infusion.

At the same time, it helps to improve their balance sheet.

How? Well, the equipment is owned by the lessor. That means the leased equipment is not included on a company's balance sheet. That can improve your debt-to-equity ratios and your general credit position.

Companies that use sales leaseback financing typically believe that money tied up in equipment can be better utilized in other areas.

Some leases offer purchase options that can be exercised at the end of the lease. Through a purchase option, you can use the equipment now and decide whether you want to buy it later after you have a better sense of how your business is doing and how effective the equipment is in helping you to grow your business.

The purchase option may add a little expense to the lease but the flexibility it gives you is often worth the extra money.

In addition to providing a source of capital, sales leaseback transactions also provide business owners with various tax advantages. Your tax advisor can explain that aspect of sales leaseback financing to you.