Business owners often face the dilemma of either buying or leasing machines or equipment for their businesses. This could include computers, machinery and all other types of required equipment for the business. However, apart for budgeting for the costs and type of machinery, a lot of other important factors must be considered. These include tax benefits, maintenance, flexibility, operating costs and many more.
So, as and when you choose and list down the final equipment and machinery suitable for your business, it would be better if you would think about whether to lease or to buy. This is extremely crucial as one factor may easily outweigh the other and save you from burning a hole down your pocket. It would be better f you could invest some time in jotting down the pros and cons of both!
Hence, we find that many business owners are greatly confused while taking this decision. Although, the decision should be easy as it entirely depends on the type of business and situation, but it doesn’t seem so easy. Leasing might be a better option if your business needs change/upgradation from time to time. However, buying is viable for bigger and well-established businesses who are there to stay! So, in this article, let’s compare these two options in greater detail.
Why and when Should you Buy Equipment?
The primary criteria why even small businesses opt for buying equipment, is to simply get tax-deductions. Although this might seem a steal deal at first, if your company can’t bear the initial costs, this decision can hurt the entire balance sheet! Buying equipment is generally considered good when that equipment would be in use for a long-time or even more often.
Moreover, buying often gives a great flexibility and full-ownership, which can let businesses run even smoother! However, buying is only appropriate for somewhat large businesses who have a decent cash flow. Small businesses who opt for buying equipment would first spend years to write-off the loan of that equipment and until then, who knows that the equipment might become even obsolete!
Why and when Should you Lease Equipment?
If you are a small business with lower cashflows, you must always opt for leasing equipment. This will not only decrease your upfront costs of buying the equipment, but the extra cash can be used up in the business itself to improve and grow! However, when you lease equipment, the tax deduction benefits become almost negligible.
Also, not only can the remaining cost be used up in the business, it can also be used up in maintenance, upgradations, etc. Leasing is the most viable option for small shop owners, businesses that run on rented places, stores and even some other small offline retails.
Purchasing Equipment
Pros
a.) Get Tax-deductions: If you opt for an equipment purchase right away, you are eligible for a complete tax-deduction on the price in the first year itself!
b.) Full-ownership: Buying an equipment gives you full ownership of the same. This lets you make necessary alterations and modifications as and when required by your business. Moreover, buying becomes even more advantageous when the equipment has a long life and there’s no fear of it getting outdated. This saves further costs for maintenance and if there’s any problem with the machinery, you can fix it right away (without having to seek anyone’s permission).
c.) Total Control: When you buy an equipment, you own complete liability of it. You can use it at its full potential to seek maximum outputs. This can in the long run improve profits and sales.
d.) A Competitive Edge: In case of a rare equipment or machinery which you need to import, its better to purchase it right away. This can prove beneficial in the long run as it gives a great competitive edge.
Cons
a.) Higher Initial Costs: While opting for buying, you need to face higher upfront costs. Even if you decide to take a loan, you must bear at least 20-30% of the cost (down payment) up front. Also, loans can deteriorate your balance sheets to a great extent which might prove detrimental when asking for more loans or debt for growth of the business!
b.) Equipment can get Outdated: Buying equipment can prove to be a wrong decision if the equipment can get outdated easily. Moreover, not only would you have to replace that with new-gen equipment, the previous one can even demand for additional maintenance costs and repairs!
Leasing Equipment
Pros
a.) Less Initial Costs: When you lease equipment, you need to bear less upfront costs. This helps you maintain your cashflows and balance sheets and even lets you invest the remaining sum into other priority aspects of the business.
b.) Get the Best Equipment: Leasing can prove best when your business requires up to date equipment. You can easily switch and upgrade to newer tools at extremely low costs!
c.) Flexible: Leasing is considered more flexible when compared to buying which includes taking loans. Moreover, this can save you form damaging your credit score (as with buying people often tend to forget their EMIs).
d.) No Maintenance Headache: When you lease a certain set of machinery, the leasing company is entirely responsible for its maintenance and repair. You don’t need to invest a single penny for these aspects!
Cons
a.) Less Tax-Deductions: Although leasing comes under business expenses, however as compared to buying, the amount is pretty low. So, the tax-deduction would be low as well.
b.) You are not the Owner: Leasing proves to be disadvantageous as you are not the owner. So, you can’t sell the machinery and get your money back in case you want to do so. Hence, leasing is of no use in this case until the lease period expires or the machinery becomes outdated!
c.) It might get Expensive: Sometimes leasing can get quite expensive in the long run. This is because some leasing companies require you to pay interest along with leasing expenses. So, even though the initial cost might be low, if you compare the total cost, who knows you might have even paid twice when compared to buying!
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