The foundation of success…
A common challenge for all businesses is how to pay for the equipment needed to perform their services. Even among experts and professionals, opinions often vary. The one thing to recognize is that every business is unique and there are no one-size-fits-all standards. Only you know what your capital reserves are and what type of reserves your business will require from month to month. While some businesses are more sophisticated than others, only you have access to the full spectrum of your financial position today and the forecast of liabilities to come. It is not only essential that you prepare properly; it’s crucial
At first, one of the first professionals you should consult with is a tax professional. This person can view your business in its entirety and then match your business needs with the right tax plan. It is an accepted belief that proper tax planning is the main step for a successful business. After correctly identifying your needs, now is the time to strategize your method of trading. To help you with that method, we’ve compiled a simple list of the pros and cons of leasing equipment versus buying it. This list is generic but reveals industry standards for features and benefits. As you review, apply these characters to your business and see how you measure up. Good luck!
Own
1. When you decide what equipment to use, of course you are buying it. The equipment is yours to do with as you please.
2. By purchasing the equipment, you have immediately created an asset on your company profile.
3. Depending on your team and how your company is structured; You may be entitled to certain tax benefits, such as cancellation of expenses in the first year. (Consult with a tax professional)
4. There are no payments. (It’s yours.)
5. Now that you own the equipment, you have the option to resell it. (At a lower price)
Rent
1. The first benefit is that if you don’t have the reserves to buy, leasing is a viable option.
2. If you were to buy with a bank loan, the bank will likely require a 20% down payment. When leasing equipment, the standard is that a month or two payment is required in advance and that’s it.
3. Even though you are renting the equipment, it is still an asset to your company.
4. Although you have a monthly payment, you also have the option of upgrading your equipment before it becomes obsolete.
5. When you purchase assets, you want assets that will increase in value, not depreciate. With many equipment materials needed to function, they will depreciate after the first year of use.
6. When leasing all your equipment, you may be able to write off up to 100% of your payments as business expenses. (Consult with a tax professional.)
7. Most items can be rented, such as phones, furniture, and computers, not just heavy machinery.
8. Choosing a lease allows you the flexibility to maintain capital reserves for payroll and miscellaneous expenses that may occur.
9. There are many types of leases that can suit your business profile and business needs.
10. Leasing rates are ‘fixed’ and range from 12 to 60 month terms.
As you can see, the features of leasing far outweigh those of buying or owning the equipment for many businesses. Eight out of ten companies prefer to lease to buy. The list you just reviewed outlines the key components of both options, but with more research, you’ll find that leasing offers many more opportunities to fulfill your wishes.
Talk to an equipment leasing professional to find the right lease for your business. It is a good business!
JR talk
Commercial Real Estate and Finance Consulting