Food and beverage industry leaders rely on a variety of finance strategies to maximize the efficiency and success of their businesses. According to the polling results from the co-hosted Lease Accounting Changes Webinar for Food + Beverage companies, 56% of the attendees indicated their finance strategy included between 1-20 leases. Another 26% reported leveraging more than 20 leases. Heather Ayers of First American Equipment Finance’s Food + Beverage Division outlined why companies choose to lease. Advantages include creating predictable cash flows and budgets, establishing a disciplined technology or equipment refresh cycle, and preferred tax and accounting treatments.
According to data presented by Brian Todd of The Food Institute, the use of leasing in the industry has risen 41.7% since 2010. The sectors that use leasing most frequently are animal slaughter, fruit/vegetable canners, beverage & tobacco, dairy, and baking. These sectors account for more than 80% of food machinery leasing expenditures. Other notable trends in the industry were the rise in both Capital Expenditures and Merger & Acquisition Activity.
The prevalence of leasing in the food and beverage industry only underscores the importance of understanding the changes presented by the new lease accounting rules update from the Financial Accounting Standards Board (FASB). Ron Lagnado of Mazars USA presented the specifics of ASU 2016-02 that will affect attendees. The new guidance is intended to increase transparency in lease accounting by requiring organizations to report long-term lease liabilities on the balance sheet. Operating leases will now be reflected on the Balance Sheet instead of only disclosed in the notes to the financial statements. 45% of attendees indicated that they believed these changes will affect their bank covenants as a result.
Watch the full webinar learn more about industry finance trends and how these changes will affect your business.