There are many factors to consider when you need equipment like vehicles, machinery, or computers. One of the most important is whether you should lease or buy. Both of these options have advantages and disadvantages based upon your unique business situation.
Some good questions to ask yourself first:
- How frequently does technology change with a particular asset?
- What are your financing options for purchasing vs. leasing?
- What are the tax benefits of buying vs. leasing?
- How long do you plan to keep the asset?
Once you are able to identify these important answers, you can make your decision based upon the Pros and Cons of the two options. Here are a few aspects for each:
- Usually pay nothing up front
- Predictable monthly expenses
- Your equipment will be up-to-date
- Acquire technology otherwise possibly unable to afford
- You will pay more in the long run
- You must keep paying even if you no longer use the equipment
- Easier than leasing
- Your equipment may be tax deductible; contact your tax consultant
- You get to make decisions on maintenance
- Eventually equipment will be outdated
- The equipment you really need may drain your capital
- You pay for all the maintenance
Reviewing costs for equipment through either method should include considerations of cash flow, tax deductions and/or potential resale value. Think about how quickly the equipment will be outdated, revenue derived from its use, size, and net cost.
Leasing and buying both offer advantages to companies. The key to making the right decision is understanding exactly what your company needs and the purpose of the asset.