BUYING VERSUS LEASING: Which One Should You Consider For Your Business?
When starting out a new business or perhaps you are growing an existing one, there are various tasks plus life-changing decisions that can make life quite overwhelming for business owners. One of such decisions is whether you are going to buy or lease for your businesses. Opinions are usually determined by personal circumstances, and what is to your advantage most likely are not the best for other people. As buying is good, leasing is also appropriate for virtually any business at any developmental stage. Regardless of the choice you make, both leasing and buying have got their distinct pluses and minuses.
Leasing versus buying equipment for your business
Every business needs different equipment and each piece of equipment will need to be examined for its own unique condition to decide whether leasing or purchasing is the better deal for your business. Owning some type of equipment can be costly and not all businesses can afford it. If you are planning on buying your equipment outright, you will need to ensure the money you have on hand can be invested in equipment or if an equipment loan is your alternative.
An equipment loan will put a different dimension to the decision since you will have to manage the loan terms and the cost associated with that. Besides, you will need to consider if you can cater for its insurance cost/maintenance cost and whether you have a prepared location for its parking. Above all, you need to consider how frequent it will likely be used – will it be regularly or periodically? Is there any possibility for its use in the future? If the cost per use is less than the day-to-day rental cost, then it may be reasonable to buy one. Otherwise, leasing may be the best alternative.
As an entrepreneur, it is essential you consider the pros and cons of buying or leasing equipment for your business. Many business owners who are dealing with buying versus leasing may choose to lease in an effort to allow for more versatility even though it may be more expensive over time.
Let us also look into buying versus leasing land/building for your business
As a business owner, whether small or big, the question of whether to lease or buy office space is terribly important to consider. If you decide to buy land or building, you will have to be prepared for a bigger spending since you may need about 25% as an initial payment. On the contrary, this percentage can considerably reduce when you lease office space. Although you can enjoy fixed costs when you purchase your office space, you have to think about the maintenance and upkeep issues, which is not a worry with leased space – even though there could be an increase in your rent depending on the nature of the market at the renewal time of your agreement.
Furthermore, you need to look into your company’s growth when evaluating leasing versus buying for your business. A growing company needs larger facilities, leaving you with the expenses and hassles of selling your old office space and buying newer facilities. It is more convenient to rent larger office spaces when your business is growing. If your business has peaked and stabilized, you might think about buying space. If not, leasing remains the better alternative.
Leasing Versus Buying Car
The decision to buy or lease a car either for personal or business use calls for serious consideration. If you have bought a car in the time past, you will probably be familiar with the rate at which they depreciate over time. And this is among the most powerful arguments against buying cars. By renting a car, you don’t need to bother about its maintenance or how rapid the car is depreciating since you don’t own the car and can easily return it as soon as the term ends. However, there are generally some limitations if you choose to lease a car for your business. One of them is the mileage. You will only be able to use an agreed-upon mileage on the car. And if there is any extra mileage used, you will have to pay for it unless you decide to buy the car outright.
Now, let us evaluate the benefits associated with leasing for your business
Every entrepreneur is always looking for opportunities to reduce costs and one of the several sure ways to achieve that is through leasing. From increased income, affordability to the easy financial management of your motoring expenses to low initial investment, tax benefits and VAT relief, the benefits of leasing are incredible.
Leasing frees you from most maintenance and insurance cost and also offers the opportunity to have the most updated facilities for the job. Since you can easily swap your equipment when you rent, this ensures your staff is continually flanked by the best, creating for them a better working environment. They will be able to perform their jobs excellently since they are using the best facilities. Productivity will likewise increase since you won’t need to wait around to repair the old and damaged facility. Besides, it is incredibly easier to upgrade a leased facility since you would not search for buyers or handle the equipment losing value.
Just like it is with any businesses, there are always tax issues to look into. Payments made are tax-deductible when you lease, which explains why some businesses opt for it. Furthermore, leasing helps business owners, particularly the small business owners to save some money for other business uses. Even if the full amount cannot be written off, part of the payments made can be deducted.
A few other benefits of leasing may include:
- Ease and convenience – Signing up for a lease is easy and its arrangements can be structured to suit your needs.
- Payment write-off – You could fully write-off about 100% of your payments as a business expense
- Flexibility to maintaining capital reserves – Nearly all leases can be arranged so that payments are made with operational instead of capital funds.
- Predictable payments – Having fixed lease payments allow you to precisely estimate the impact of facility expenses on your cashflow.
- Protection against inflation – In contrast to bank credit lines with flexible rates, your payments are fixed In spite of the nature of the market, making it much easier to budget, predict and expand.
The major shortcomings to leasing are usually at the completion of a lease
You may have nothing to show for it except you have a buyout alternative
Internal rates of interest are usually higher priced.
BENEFITS OF BUYING FOR YOUR BUSINESS
Being the proud owner of your property can be thrilling in spite of all the drawbacks, like the maintenance costs. It is a guaranteed solution for business owners who are operating steady and profitable businesses. When you buy (say) a land/building or equipment for your business:
- There are no extra payments and your equity increases
- The building/equipment remains yours and can be modified at will
- You have an additional asset to your company profile
- The land appreciates and can be resold later for a price higher than the cost price
- You can also rent out some part of the land/building to others
- Depending on the facility and how your business is set up, you may qualify for certain tax benefits, like writing off the cost in the first year.Drawbacks
The basic shortcomings to buying include the access to capital and equipment obsolescence. When buying equipment for your business, keep in mind that they will depreciate over time. And this may become an issue when you decide to sell it. Besides, you will only be able to take back a portion of its original purchase price. Many companies that choose to buy their equipment turn out holding on to them until they no longer function. At that point, the majority of the equipment is out of style, which makes using it quite difficult. You can simply avoid these difficulties by opting for leasing in the leasing versus buying game.
Summary & Conclusion
Although the benefits of leasing may outweigh that of buying, the decision to buy or lease for your business is a personal choice and depends greatly on your situation and needs. One thing you must understand is that each business is unique and there is no specific standard that works for all. Only you understand the financial position of your business. Whichever suits your goals and is more cost-effective in the long-term will surely be your best bet. However, remember to do your research and contact anyone who has rich experience in local laws and trends to enable you to make the best decision for your business.
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