There are some gear, machinery, and tools that are crucial for running your business, like the delivery van for your food service or the digital printer for your print business. But when you need a key business asset, do you buy it outright or go for a monthly lease? To buy or lease, that’s the question. Purchasing new business equipment can be a big expense. So, based on your finances, consider the pros and cons of buying or leasing. Let’s start with why you might choose to buy the item…
Buying: the pros and cons:
- Pro: It’s a solid asset – when you buy something, it’s yours, showing up on your balance sheet as part of your business assets. By outright owning these assets, you boost your business’s perceived value. Plus, you can offset the asset’s cost against your tax allowance.
- Pro: It’s yours for the asset’s life – once you own it, you’ve got full use of the equipment as long as the asset lasts. You’re not tied to making regular lease payments, and if things change financially, you can sell the asset to free up some cash.
- Con: It’s a big expense – paying upfront for an item is a hefty outlay for your business, needing the cash to cover it. It could drain funds from other areas, so you must be absolutely certain it’s the right move and a smart investment.
- Con: You might need extra funding – if you can’t pay outright, a loan might be necessary. Asset finance is an option, but it does mean committing to a loan that adds to your business liabilities, impacting your balance sheet worth.
Leasing: the pros and cons:
- Pros: Leasing gives you a cheaper way in – if what you need has a hefty price tag, leasing lets you use it without the full-on cost. For startups and small businesses with limited capital, it’s a pretty appealing choice. You might not own it, but being able to use it could be the game-changer for your business’s success.
- Pros: You can spread the cost – there’s still a leasing cost, but you can stretch it out over time, making it easier to find the cash flow needed to cover your payments. With the money saved, you can invest in other areas, helping your business grow, expand, and attract more customers and revenue.
- Cons: You won’t own the asset – the type of leasing agreement matters. With a capital lease, you do own the asset once it’s paid off. But with an operating lease, it’s short-term and you won’t own the asset after the contract ends. Ownership has its perks (like being able to sell the asset if needed), so it’s crucial to know the type of lease you’re getting into and its pros and cons.
- Cons: You might end up paying more – most leases come with extra costs and interest, so in the long run, you could pay more than the market value. If you’re okay with the higher cost, that’s cool, but remember that buying outright might have been a better deal.
- Cons: You could lose access to the asset – if you struggle with lease payments (maybe due to cash flow issues), the lease owner might take back the asset. If this asset is vital to your business, losing it can seriously impact your operations. Leasing is a bit riskier in this sense, but it’s also an easier option for cash-strapped businesses.
Deciding between the two isn’t always easy, so it’s smart to chat with your accountant early on in the process. We’ll assist in reviewing your finances, checking cashflow, and evaluating costs to figure out what’s best for your business. Not quite sure? Let’s chat about whether buying or leasing is the way to go.
