There are some factors to consider for buying or leasing new business equipment. Buying an item is often less expensive during its lifetime, but leasing typically needs less cash upfront, placing less impact on cash flow.
The biggest difference between Lease Purchase and Hire Purchase is the amount you pay and when you pay it. If you can afford the larger monthly payments, Hire Purchase may end up being less expensive in the long run because you’re paying off the cost faster and so paying less interest. Let’s continue to learn more about the pros and cons of buying or leasing new business equipment.
The Pros and Cons of buying or leasing new business equipment
When it comes to buying business equipment, you need to ask yourself whether it’s better to buy or lease. Depending on the needs of your business, the answer might not be simple. Both purchasing and leasing equipment have benefits and drawbacks. It’s up to you to determine what’s most important for your business.
For example, you should decide between having steady cash flow and a lower monthly payment or having owned equipment that you can sell when you’re done with it.
Additionally, you should think about your employees’ needs and whether the equipment will impact their ability to get work done. This article will illustrate the pros and cons of buying new business equipment vs. leasing.
Leasing Business Equipment
You’ll make lower monthly payments when you lease business equipment without owning it. Equipment leasing for startups is gaining popularity.
However, once your lease term is up, the company you lease the equipment from will give up ownership of the equipment, and there may be a good option to purchase it at a lower price. There are a few different types of leasing options, and you must do your research to figure out which is best for you.
Benefits of Leasing Equipment
Leasing or renting equipment has various advantages: You don’t have to pay the whole cost of the asset upfront, so you don’t have to burn through your cash or take out a loan. You have access to higher-quality equipment that would be prohibitively expensive to purchase outright.
Leasing allows the lessee company to make full use of the asset without having to pay the whole purchase price upfront, as would be the case otherwise. As a result, businesses that are short on cash might acquire assets by leasing rather than purchasing.
There are many benefits to leasing equipment over purchasing it, including:
1. Conserving Capital
Leases have lower monthly payments than purchasing and may be appealing to businesses that want to save more money in the short term. These individuals will want to keep a steady cash flow to put back into the business, so buying equipment might not be an option. Create your lease vs buy equipment analysis excel.
2. Better Equipment
When you lease equipment, you have access to the newest versions available. Additionally, leasing equipment may mean you have more to spend on better equipment. If the choice is between buying used equipment and leasing new equipment, you might find it’s better to lease because it can improve employee productivity.
3. Affordable Upfront Costs
If you’re buying expensive equipment, you may need a loan which means putting down collateral or making a sizeable down payment. You don’t have to deal with any upfront costs with a lease since the equipment itself is considered collateral. Therefore, if you stop paying your lease, the lessor could take the equipment back.
4. Tax Deductions
You can deduct the cost of rental payments on your taxes, which can decrease your tax liability at the end of the year and during quarterly taxes. The only potential problem with taking deductions on lease payments is that the IRS will characterize your lease as a sale, similar to if you actually purchased the equipment outright.
5. You Don’t Own Old Equipment
The equipment depreciates in value as soon as it’s used. If you purchase the equipment new, you own an asset that won’t give you a return if you sell it a few years down the line. You don’t own the equipment with a lease and can lease the latest technologies, which can offer better features and fewer bugs. You will find many leasing business examples nowadays.
Disadvantages of Leasing
Some people are interested in equipment lease to own. The equipment leasing business model is popular, yet it has some demerits. Some factors can deter business owners from leasing, including:
1. Higher Overall Cost
While your monthly payments will be lower with a lease, you’ll pay more for a lease in the long run. Additionally, you won’t own anything once your lease is over, so you’ll have spent money on an asset you don’t own.
2. You Can’t Quit
If you decide you don’t need the equipment halfway through the lease, you’ll still need to pay the rest of your lease. This must be considered while researching on the pros and cons of leasing vs. buying new business equipment.
When you lease equipment, you don’t own it, which means you can sell it and recoup some of the money you spent on it.
Buying Business Equipment
Buying equipment for business tax is important to consider. Buying equipment outright also has benefits and drawbacks. However, it may require more upfront cash, and you might have to take out a loan. Here are the advantages and disadvantages of buying equipment.
Advantages of Buying Business Equipment
There are many advantages to owning business equipment if you have the resources to purchase it, including:
1. You Own It
Once you’re done paying for your equipment, it’s yours. You can then do whatever you want with it, but if you plan to use it for a long time, you should teach your employees how to use it correctly. For example, you might lay out the right behavior when using equipment in your employee handbook to ensure your employees understand the repercussions of breaking it.
2. Tax Deductions
There are tax deductions for any of your business expenses, including buying equipment. You can deduct the full purchase price to reduce your taxable income and pay less on your taxes when you buy equipment.
You can choose to finance the equipment to make payments more affordable. In many cases, your vendor will offer financing on a large purchase, but taking out a loan makes the equipment more expensive. If you can, purchase the equipment without a loan to avoid incurring any additional costs.
Disadvantages of Buying Business Equipment
Just like leasing, buying equipment comes with disadvantages, including:
1. Higher Upfront Cost
Unless you finance it, buying your equipment outright means you’ll have a higher upfront cost.
As the equipment owner, you’ll be responsible for maintenance costs throughout the life of the equipment. Therefore, you should factor these costs into the total cost of purchasing equipment.
Business equipment depreciates in value as soon as it’s used, so even though you own it, you may not be able to sell it for much when you’re done with it.
When considering buying vs. leasing business equipment, consider how much it will cost you. While leasing equipment to your own company, consider its ROI. Many small businesses don’t have the resources to purchase the equipment outright, and they’ll need to take out a loan if they plan to buy. However, these businesses can also choose to lease equipment, which means spending more money over time.
Whatever you choose to do, ensure that getting business equipment is the right decision for your company. You should only purchase new equipment if it offers new features or benefits, such as improved productivity or if your equipment breaks down. However, with a leasing option, you may not have to purchase the equipment at all. I hope this article on the pros and cons of buying or leasing new business equipment was worthy to you making a suitable decision.
Author: Matt Casadona
Matt Casadona has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. Matt is passionate about marketing and business strategy and enjoys San Diego life, traveling, and music.
More Interesting Articles
- Career Development Strategies of Companies – 14 Factors
- Emotional Skills – How Many Do You have from Complete List
- Why Did You Choose This Career – 7 Tricks to Answer Well
- Cover Letter Sample for Internship – How Can I Apply for Internship?
- What do Chemical Engineers Do – Why are Chemical Engineers Important?
- Workplace Environment Factors – What is an ideal work environment?
- Teamwork Examples – What is good teamwork in the workplace?
- Concept of Entrepreneurship – Which One Suits You Better?
- Reference Letter From Employer – How to Write a Good One
- Career Development and Planning – 5 Key Factors to Know
- List of Skills – Tricks to Put Wisely on a Resume that Others Don’t
- Forestry Careers – Prospect, Salary, and Required Degree
- Adaptability in the Workplace – How to be a Changemaker by Own
- Transferable Skills – Definitions | Types | Examples
- Entry Level Job Titles in Marketing Even Before the Graduation
- How to be Humble and Confident – 16 Foolproof Techniques to Improve
- Questions to Ask CEO in Interview – How to Learn Leadership
- Problems of Entrepreneurship that Open more Opportunities
- Paternalistic Leadership – Definition | Examples | Characteristics
- How to Deal with People that They will Turn your Fan