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How to Decide Whether to Buy or Lease Equipment
Deciding whether to buy or lease equipment for your small business can be tough. Some people are more comfortable purchasing their equipment outright, while others prefer to lease. Your decision, however, should be based on your business?s unique situation and therefore should be made on a case-by-case basis. Here are the reasons behind both options.
REASONS TO BUY
- Usually cheaper in the long run
Buying equipment outright is usually cheaper in the end. That?s why it?s a good idea to look closely at your investment over the long haul. You may have to pay a large sum up front, but the money you spend overall might be considerably less.
- You?ll own it
When the equipment has a long life and doesn't quickly depreciate, ownership can be a huge advantage. Ownership can also allow you to build equity in the equipment.
- Quick write-off on your taxes
If you immediately write off your purchase, your full tax benefit will come much quicker than it would with a lease. The IRS allows you to fully deduct (up to a certain amount) the cost of some newly-purchased assets in the first year.
- Business hinges on this equipment
It's often recommended that you purchase the equipment that is pivotal to what your business does. Tech companies should invest in computers, software, etc. Restaurants should invest in ovens, stoves and dishwashers. Printing companies should invest in quality printers. If the entirety of your business depends on it and you need the latest and greatest, you probably want to buy it.
- Prices for tech equipment have come down
Because the prices for equipment like computers and such have drastically dropped in recent years and continue to drop, you'll probably end up paying for more in to a lease than you would just buying. Also, much of this equipment has become very affordable for small businesses.
REASONS TO LEASE
- 1. Control your cash flow
When you lease you don?t have that enormous initial expense, so you can obtain the equipment you need without significantly affecting your cash flow. In addition, having a fixed monthly cost will also help you in the budgeting process.
- Upgrade from one generation of technology to the next
Tech equipment in particular has a short life span. It can become outdated very quickly. Leasing passes the burden of equipment becoming obsolete onto the lesser, while you move on to the newest version after your lease is up.
- Tax deductible
When you lease equipment, your lease payments can usually be deducted as a business expense, which can reduce the net cost of your lease payments. Lease payments may also reduce tax liability.
- Flexible payment terms
Leases are easier to obtain and have more flexible terms than loans for purchasing equipment. So if you?re credit history is less than optimal, the flexibility of a lease is an advantage.
- Don?t have to worry about maintenance or support
When you buy equipment the onus is on you to maintain it. That?s not necessarily the case when it comes to leasing. Often maintenance and/or support are included in the lease. So you?ll minimize the cost of surprise expenses should something go wrong.
The decision to buy or lease really comes down to your business?s financial situation and unique needs. The first thing you need to decide is whether you are even able to purchase equipment outright or not. If you don?t have the cash or any financial assistance, leasing may be your only option. If it is financially feasible to buy, that doesn't necessarily mean that you should. Try to figure out the approximate overall cost of the equipment. Factor in tax breaks, resale value, possible maintenance costs, etc. Then determine which option is more cost effective for your business.
Beyond financial, there are other intangible considerations that you need to weigh. For example, what is the main focus of your business? If you're an Internet company that depends on keeping pace with the latest technology, then buying may be the way to go. If you own a woodworking shop, then you may want to purchase your essential tools and equipment. You may also want to consider the possibility that the equipment of technology will become obsolete or severely outdated or how long you'll actually need the equipment. Will your need expire before the lease? Or will you need the equipment for the long haul? There is no one-size-fits-all option, so weigh all of them before you choose one path over the other.
