If you’re a small business owner, you may need to replace essential equipment or machinery. This keeps your goods and services rolling out on time and keeps the money coming in.
But is it worth it to buy new equipment, or should you lease it?
When it comes time to upgrade the essentials in your business, here are questions to consider before you decide to lease or buy.
Why do you need equipment?
Choosing to lease or buy bumps up against several factors in your decision, such as the useful life of the equipment, your budget and the tax positioning. Even internal politics within your company can play a role in how and when the equipment gets replaced. You need to evaluate all these factors to make sure you replace equipment at the right time and for the right reasons.
Does the equipment have long-term value?
If the equipment you need has residual value, that means it won’t become a money drag over the short term because it can retain its value over the long term.
How will you maintain the equipment?
It is important to keep an asset running well, especially if you want to lease it. Simply put, the equipment needs to have future value that the company leasing to you can get back at the end of the lease period.
What are your financing options?
When you consider leasing options, you need to consider your projected earnings over the term of the lease. When does your cash typically ebb and flow? Can your financial low tides still cover the costs of financing?
So, should you lease or buy?
There’s a strong argument for leasing your equipment instead of buying it, even with financing. Leasing can offset asset depreciation and basically let the thing pay for itself with your profits. When you lease, you keep other funding options open – lines of credit, term loans and so on – that may not be available to you if you finance to buy.
If you don’t have a lot of cash up-front to buy equipment, leasing is a great option because, with newer equipment, you don’t have to put the money into maintaining used equipment. Granted, you still need to keep equipment in working order, but running your business with quality equipment can boost sales, reduce operating expenses and increase equity.
And don’t forget about the tax benefits when it comes to leasing. The tax deduction you can take will almost always be more than the money you spend on the equipment, as long as you have a well structured lease agreement and take a full deduction, according to irs.gov.
That means you can deduct your lease payment on profit and loss, figure in your alternative minimum tax and exchange tax benefits for a lower rate. All this means improved cash forecasting, increased return on your assets and better working capital for the future.
If you’re ready to lease new equipment, consider Liberty Capital Group for your financing and leasing needs. Whether you need office equipment or other essential machinery, Liberty Capital has the expertise to guide you through the process and provides external financing with independent leasing companies. Visit Liberty Capital Group’s website to apply for small business funding.