For many businesses, equipment will be their biggest expense. Whether its computers, manufacturing machinery, or vehicles, what may seem like the easiest answer right now might end up costing you more in the long term. Here are some factors to consider when deciding what’s right for you.
Buying the equipment will require a large initial investment, so if money is tight, leasing with a monthly payment may be easier to budget for. On the other hand, leasing usually costs more over the long term.
When you own the equipment outright, you can sell it later and recoup some of the cost. On the other hand, leased equipment can be traded in as new technology emerges or your needs change.
If you really want to buy but just don’t have the money, consider getting a loan that uses the equipment as collateral. Equipment financing often offers low-interest rates and affordable payments, so you can have the best of both worlds.
Leasing is a good choice for equipment that needs to be updated frequently due to heavy wear or evolving technology. Be careful, though, that the lease terms don’t require you to hang onto outdated equipment longer than you want.
Leasing is also usually the way to go if you only need the equipment for a short time or a special project. Most business owners choose not to buy — and store — something they’ll only use a few times a year.
When you buy equipment, you can choose whatever you want, and even have it customized to your needs. With a leasing company, your options may be more limited.
On the other hand, since you’re not making a major financial commitment, leasing may encourage you to try new products and technologies.
When you own the equipment, you’re responsible for repairs and upkeep. You have to carry insurance on it, which is another expense. And if it’s so broken that it’s un-repairable and un-sellable, it will be a total loss. However, you can get it fixed on your own schedule and to your own specifications.
Maintenance of leased equipment is handled by the leasing company. This relieves you of expense, but you also lose control of when and how repairs are done. Plus, you may be liable if the equipment is damaged.
Leasing equipment is usually 100% tax-deductible as an operating expense under the 179 IRS Tax Code.
Purchased equipment may or may not qualify for a tax incentive; check with your accounting professional. Even if it doesn’t, you can still take a deduction for depreciation. Also, the time of year that you make the purchase can affect your tax return.
Xendoo helps clients make the decision whether to buy or lease equipment, clarify long- and short-term costs and benefits of each option, and plan tax strategies. Each business is unique and requires personal attention and expertise. That’s just what Xendoo delivers.