Running a small business requires owners to make many choices on how to spend the company’s crucial capital savings. From marketing spend to reinvestment options to providing wage increases for the most dutiful employees, the constant decision-making can be overwhelming for some owners who just want the company to run smoothly. Buried in the middle of all of these choices is the option of whether you should purchase or lease the equipment that helps your business operate at maximum capacity.
Both sides of the equation have their pros and cons, but not every advantage will outweigh the disadvantages for each company. For instance, some companies might need to tweak or alter the machinery to perform a certain task, which is an action that would otherwise void the leasing contact.
Here are five things to consider when determining whether you should lease or buy equipment:
If you’re in a business that needs the most bleeding-edge machinery and equipment to function and maintain a competitive edge with your industry peers, it can be especially wise to lease equipment. This method allows companies to exchange outdated equipment for newer versions, making technological acquisitions easier and a regular occurrence
Less upfront money needed
Not all companies have a steady cash flow, and business cycles can often create extended periods of either feast or famine. However, obtaining new equipment is crucial for staying competitive, but not having enough upfront capital to make the purchase in its entirety shouldn’t be an excuse for not upgrading machinery. Thankfully, byleasing equipment, you can spread out the payments over time, eliminating the need to save up for one lump sum capital transaction. This makes budgeting and financial forecasting easier and less stressful for the company, since you’ll get a predictable monthly expense. Business owners often cite the regular payments as a key reason why they choose tolease equipment.
In addition to the consistent monthly payments, equipment leasing also provides a significant tax benefit. With Congress permanently extending the Section 179 tax break for companies thatlease, you can deduct up to $500,000 worth of equipment leasing.
No maintenance costs
While saving up and making an upfront payment to buy an entire piece of equipment or machinery is expensive in its own right, this often doesn’t even cover the full cost. Equipment can often break down and need repairs, which will eat up additional costs down the road. This is especially true for companies that want to make the most of their investments and hold onto the equipment as long as possible. However, the longer you hold onto the equipment, the greater the chance you’ll have to eventually repair or fix problems that limit the machinery’s efficiency.
On top of the many benefits already listed, leasing equipment provides a considerable amount of flexibility for a company. For instance, after saving a considerable amount of capital to buy a brand new piece of machinery for your company, you realize after a few months that the equipment is not really making a difference in the way you’d originally hoped it would. But since it’s already been purchased and paid for, the company is stuck with the equipment. While you could sell it, chances are you’re already losing money on the depreciation of the asset. However, leasing the equipment provides a better sense whether the machinery meshes with your operational model and methods. If it doesn’t you can always discontinue, modify or alter the contract, without taking the same type of financial hit that an outright purchase would include