Do you own your growth – or does your equipment own you?

For many SME leaders, owning machinery, vehicle fleets, and IT equipment feels like control and stability. "What we own, we control." But in a market defined by speed, technological obsolescence, and unpredictable supply chains, the traditional asset-heavy model — where capital is tied up in physical assets — has paradoxically become one of the biggest barriers to growth.

According to analyses from McKinsey & Company and Boston Consulting Group (BCG), the ability to operate asset-light is one of the most decisive factors in modern business competitiveness. By shifting focus from ownership to access, SMEs can significantly improve their return on equity (ROE) and secure the liquidity needed to navigate the critical phases of growth safely.

The calculation that reveals the financial blind spot

Consider a classic investment: a manufacturing company buys a new machine for DKK 1 million in cash. On the balance sheet, it looks fine — the asset is there, and debt is zero. But this is where the financial blind spot appears. That million, now sitting as "iron on the floor," delivers a return of exactly 0%. The machine creates value through production, but the capital tied up in it is passive.

That same million, invested in product development, marketing, or recruitment, would typically generate a return of 15–20%. This is opportunity cost — the price of the options you turn down. Strategic leasing isn't about lacking funds; it's about intelligent capital allocation. By letting an external partner finance the equipment, the business frees up its equity for the activities that actually move the needle. Research from EY shows that companies able to keep their balance sheets lean consistently achieve higher total shareholder returns (TSR) than their asset-heavy competitors.

Watch out for the growth trap

Harvard Business Review describes the scale-up phase as the most dangerous stage for many SMEs. This is the moment when the business has proven its right to exist and orders start rolling in. And this is precisely where the growth paradox kicks in: the faster you grow, the less cash you often have in the bank.

This is driven by what economists call the Cash Conversion Cycle (CCC) — a model that EIFO also places significant weight on when assessing the growth potential of Danish businesses. As orders increase, the need for raw materials and staff rises immediately, but payment from customers may not arrive for months. If the company's liquidity is locked up in machinery, there's no room to finance day-to-day operations during a growth sprint. This is where healthy businesses break — not from a lack of customers, but from a lack of cashflow.

Fact box: Do you understand your company's CCC?

The Cash Conversion Cycle measures how many days pass from when you pay for your raw materials or products to when you receive payment from the customer. A shorter cycle means greater efficiency and lower financing needs.

Formula: CCC = Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) – Days Payable Outstanding (DPO)

Example:

DIO: You hold stock for an average of 40 days.

DSO: Your customers pay after an average of 30 days.

DPO: You pay your suppliers after 20 days.

Result: 40 + 30 – 20 = 50 days.

In this example, you need to self-finance your operations for 50 days. If your capital is tied up in equipment, those 50 days become extremely difficult to survive during a growth push.

Source: JP Morgan

Asset-light: less volatility, more momentum

One often-overlooked advantage of the asset-light strategy is reduced earnings volatility. In an asset-heavy model, fixed costs — depreciation, maintenance, interest — remain constant regardless of whether production is high or low. Leasing converts those fixed costs into variable operating expenses, making the business far more resilient to market fluctuations.

It also eliminates duration mismatch — the mistake of financing long-term assets like machinery with short-term money like an overdraft facility. By matching the financing term to the asset's useful life, you protect your overdraft so it remains what it should be: a safety net for operations.

An overdraft facility should function as a buffer for the unexpected — not a source of investment capital. When you use it for investments, you're eating into your own safety margin. And because overdrafts are typically variable-rate and can in theory be called in by the bank at short notice, relying on them for long-term financing introduces real risk.

Leasing offers strategic stability here. Fixed, predictable payments. A protected overdraft. And the assurance that liquidity is always available when the market shifts.

Agility as the most important currency

We are heading into a future where technological development is accelerating. A machine that is state-of-the-art today may be obsolete in five years. For a business that owns its equipment, technological obsolescence becomes a heavy item on the balance sheet — and a barrier to adopting newer, more efficient solutions.

An asset-light SME doesn't treat equipment as a lifelong investment, but as an ongoing operating cost. Leasing enables continuous upgrades: a more current machinery base, higher productivity, and — most importantly — the ability to adapt quickly to new market demands without going through heavy capital approval processes every time.

Sale and lease back: unlock your hidden capital

Many businesses are sitting on a hidden reserve in the form of their existing equipment. Through sale and leaseback, a company can sell its fully operational assets to kompasbank and immediately lease them back.

The result? Full use of the machinery is retained, while cash is instantly added to the balance sheet. It's the fastest way to transform a heavy business into an agile, growth-ready organisation.

Conclusion: Is your balance sheet ready for the next move?

Shifting to an asset-light strategy requires letting go of the old ownership mindset. It means recognising that a company's value doesn't lie in the machines on the floor, but in the speed and agility with which it can serve its customers. When you lighten your balance sheet, you remove the financial shackles. You can say yes to the next big order. You can afford to hire the best people. And you have the freedom to always work with the latest technology.

Want to test your company's growth readiness?

Contact kompasbank for a no-obligation review of your capital structure and find out how we can help you unlock liquidity for your next growth phase.

Sources

• McKinsey & Company: "Unlocking growth in small and medium-size enterprises" (2020).

• Harvard Business Review: "The Five Stages of Small Business Growth" af Neil C. Churchill & Virginia L. Lewis (1983).

• BCG: "When Asset Light is Right" (2014).

• EY: "How asset-light strategies and models can boost business growth" (2021).

• J.P. Morgan: "Understanding and optimizing your cash conversion cycle" (2021).