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What are the benefits of light-as-a-service for a horticulture business?
Get the latest light technology and its benefits without a huge investment
Benefits of light
Grow lights can help you to produce all year-round, produce a higher quality crop and get more consistency. The rise of LED lighting gives more possibilities to tailor the light to the needs of a crop as well as the grower's goals. Whether you want proven grow lights that perform well or grow lights with more controls and APIs, lighting has evolved from just a necessity to a powerful tool that helps you get a great quality plant and grow at scale. The business case can be compelling but the initial investment can slow down the growth and expansion.
So how can you get both the best lighting in a way that doesn’t require a huge investment? One solution is using light as a service. Here we explain its benefits.
Consider the following example:
Eric and Carolyn run Bees and Berries, a vertical farm specialized in High-quality Strawberries. Demand for their products has grown rapidly. They serve local grocery stores as well as restaurants, hotels, and directly to consumers. They would like to expand their business to produce more strawberries. For an extension of their indoor farm, they need 500 grow lights and the total cost for the lighting is 12,240 USD.
With light as a service, they can opt for a 3,000 USD down payment and pay each month 450 USD for 24 months.
In the first year, this will preserve 3,840 USD in cash from the service payments.
Improved net profit
When you purchase light as a service it is an operating expense. This allows you to charge the costs in that same book year, which can increase your tax efficiency.
Lighting equipment is normally accounted as a hardware investment that must be depreciated over 5 or 10 years, depending on the local accounting guideline. When choosing light as a service, those costs can be deducted immediately.
In the above example if assets are depreciated 12,240 over 5 years the yearly depreciation is
2,448 USD. In profitable circumstances and with a profit tax of 25%, the tax reduction due to depreciation is 612 USD.
Using the service approach their service payments 12 *450=5,400 USD can be counted as costs. In profitable circumstances, the tax reduction to this operational expense is 1,350 USD.
The difference is earnings after tax in the first year is 738 USD.
Products can be designed with the entire lifecycle in mind, including if you would like to upgrade during or after the contract.
Access to lighting professionals and the latest innovation
Often with services, you’ll communicate more with us, and this allows you to get very specific and tailored advice
It gives you the benefit of light and access to the latest technology without a large upfront investment.
Is it for every horticultural application?
Yes, for every business that is growing fast such as vertical farm, tissue culture lab or greenhouse.
Can I choose the contract term?
Yes, you can, you can choose 12, 24 or 36 months.
Is a deposit still required?
Yes, a minimum deposit is required before shipment.
Can I choose how much I pay per month?
Yes, there is a range from which you can choose. So you can choose what is convenient for you and what is best for your cash flow.
Is service more expensive than buying hardware?
Compared to buying the hardware outright, over the whole contract you might pay a bit more for the lights itself, but when counting gains in areas like tax efficiency it helps you to get a lower bill at the end and get a better return on investment overall.
This article is not tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your tax, legal and accounting advisors before engaging in any transaction.