Written by Suzette Covalt
Should you lease or buy your equipment? Here are some of the pros and cons that can help you decide which way is best for you and your business.
Pros to Leasing
Does your equipment need to be updated often, i.e. Technology, for you to remain competitive, leasing allows you the ability to upgrade/update and not be left with outdated equipment. Leasing can offer you 100% tax-deductibility. Which means the entire cost can be deducted within the same year of leasing. (Please check with your Banker, CPA and review Section 179 of the IRS tax code). Leasing companies handle equipment maintenance, if something breaks or has problems due to normal wear and tear, the leasing company is in charge of fixing the equipment.
Cons to Leasing
Generally you pay more over time than if you purchased the equipment outright. You lose the equity you would have if you owned the equipment; therefore, you do not have the option to sell the equipment to make back any money spent on the lease. You may have to settle for what the leasing companies’ availabilities are. i.e. your choice of brands or models could be out of stock.
Pros to Buying
When purchasing your equipment, you own it, it becomes an asset on your balance sheet. You are free to use the equipment any way you choose and you can sell it when you are ready. An immediate expense deduction on your tax return in the year you purchased the equipment (Please check with your Banker, CPA and review Section 179 of the IRS tax code) instead of depreciating the asset over a period of time.
Cons to Buying
If you are purchasing technology that can outdate quickly, you are then left with having to decide if you should continue to use it, upgrade it or sell it. If purchasing outright, you have a higher cost and less available cash on hand to cover other expenses. To mitigate this you could borrow the money to stretch out your payments and not use all your cash up front; however, this will increase your liabilities and could prevent borrowing additional money. You are responsible for all maintenance and repairs and could be left with old or outdated equipment.
Bottom line. Do you want growth or profitability? To grow you will need to retain as much capital as possible and focus on conserving your cash flow. To be profitable, owning equipment helps lower your operating costs and builds the value of your company.
