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The foundation of success…
A common challenge for all businesses is how to pay for the equipment they need to perform their services. Even among experts and professionals, opinions will often differ. One thing you must recognize is that every business is unique and there are no standards that work for everyone. Only you know what your capital reserves are and what type of reserves your business will need from month to month. While some businesses are more sophisticated than others, only you have access to the full spectrum of your financial situation today and a forecast of responsibilities to come. It is not only essential that you prepare yourself adequately; It is important.
In the beginning, one of the first professionals you should contact is a tax professional. This person can look at your company in its totality and then match your company’s needs with the appropriate tax plan. It is an accepted belief that proper tax planning is the primary step for a successful business. Having properly identified your needs, it is time to strategize the way you operate. To help you with that method, we’ve put together a simple list of the advantages and disadvantages of leasing equipment versus buying it. This list is general but reveals industry norms of features and benefits. When you review, apply these characters to your business and see how it measures up. Good luck to you!
My
1. When you decide which equipment to use, you are of course buying it. The tool is yours, do with it what you want.
2. By purchasing the equipment, you have immediately created an asset for your company profile.
3. Depending on what your equipment is and your company’s structure; You may be entitled to certain tax benefits like write-off of the expenditure in the first year. (Consult a tax professional)
4. There is no payment. (It is yours.)
5. Now that you own the equipment, you have the option of reselling it. (at low cost)
lease
1. The first advantage is that if you do not have inventory to buy, then leasing is a viable option.
2. If you were going to buy with a bank loan, the bank would require a 20% down payment. When leasing equipment, the norm is that you require an advance payment of one or two months and that’s it.
3. Even though you are leasing the equipment, it is still an asset to your company.
4. Even though you have a monthly payment, you also have the option to upgrade the device before it becomes obsolete.
5. When you acquire assets, you want assets that will increase in value and not depreciate. As with many equipment materials required to function, they will depreciate after the first year of use.
6. By leasing all your equipment, you may be able to fully write-off up to 100% of your payments as a business expense. (Consult a tax professional.)
7. Not only heavy machinery, most items can be leased such as phones, furniture and computers.
8. Choosing to lease gives you the flexibility to maintain capital reserves for payroll and miscellaneous expenses.
9. There are many types of leases that can fit your business profile and the needs of your company.
10. The lease rates are ‘fixed’ and range from 12 to 60 months.
As you can see, leasing features far more for many businesses than buying or owning equipment. Eight out of ten businesses prefer to lease than buy. The list you’ve just reviewed indicates the key components of both options, but with further investigation, you’ll find that leasing offers many more opportunities to fulfill your desires.
Please speak with an equipment leasing professional to find the right lease for your company. It’s good business!
JR Parlor
Commercial Real Estate & Finance Consulting
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