An important decision for your business.
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Mon, Jul 08 2013 20:30:57
Introduction:
Are you thinking of starting up a new business when you are done high school? Whether it is a large or just a small business, one of the most important things to consider is whether to buy or lease your equipment. Equipment used in your business is what makes your business a business. For a restaurant, equipment such as commercial refrigerators, an ice machine or even the dining room furniture can be leased or purchased; a traveling disc jockey might either want to purchase or lease speakers, turntables, a car, or cables; a doctors office might consider purchasing or leasing an x-ray machine or even an exam table. There are many things to consider and I will provide you with information to help your difficult decision.
A big factor in this decision has to do with the cash flow of the business. Both, leasing and purchasing, have advantages and disadvantages.
Leasing:
There are many advantages to leasing your equipment. Some of
the advantages include you pay nothing upfront, payments are often less than
actually purchasing, and the initial expense is cheaper. In most cases, lease
payments can be deductible, you can decide whether you want the equipment for short
term or long term lease, the terms are pretty flexible. This is good because
you might not get what works for you, so you can always switch it. You have to
make sure you read the contract, and if you cannot read it or understand, make
sure you contact a lawyer to help you understand it, but in most cases,
maintenance is included which can be extremely expensive. And lastly, with
leasing, you can have the latest and most current equipment, with state of the
art technology. Overall, it is easier and less of a liability.
But there are also disadvantages. The cost of leasing an
item comes at a high cost, potentially being a higher overall cost, so
basically you will be paying the same amount or even more than the actual cost
of the item, and you don’t own it. Also, with not owning the equipment, you do
not build equity. And along with the lease, you must pay the entire lease term.
To terminate a lease term before the period is ended, you will be charged with
large termination fees. And you must pay a security deposit for leased items. Overall,
you will be paying more in the long run for the equipment.
Purchasing:
On the other side, buying could be a good choice for you. If
you buy the equipment from the beginning, it comes out to be a lower overall
cost. You have the choice of selling it if you no longer want it, and replacing
it with something else. It also allows you to say that you own it, which many
people love to say, and you will now have an asset instead of a liability. Another
thing is that there are no limitations of use, for example, leasing a car. When
you lease a car, you can only put a certain amount of miles on it, the same
goes for some equipment. You get tax incentives of owning, and it allows you to
deduct the cost of some assets. You will not have to pay a security deposit. Purchasing
is easier than leasing and you get to do whatever you want with the piece of
equipment, and get who ever you want to do the maintenance.
But again, there are also some disadvantages of buying your
own equipment. In all cases, the initial expense will be much higher and you
will have less money to put into your company right off the bat. And the most
important thing about owning the item is that you eventually will be stuck with
outdated and old equipment.
Conclusion:
This decision is very important and could be the first thing you accomplish as a business. Business owners should carefully pick out and make the best decision for yourself and for the business. There are many things to consider. If the equipment is rather small, and less expensive, buy it. If the equipment is costly, and is something that can go out of date rather fast, then lease it. The last resource posted below is a "lease vs buy equipment calculator." I suggest you visit that and plug in your numbers to see what works best for you. It is a great and accurate tool and will help you make your ultimate decision.
RESOURCES:
"Buy or Lease Equipment: How Do You Decide?" This article was written by David Butcher, Senior Editor, ThomasNet's Industry Market Trends. This source is a supplier discovery and product sourcing website. It is "engineers' and buyers' choice for finding trusted suppliers." David has written over 1,500 articles for IMT since 2005. Butcher is said to be considered a very credible source.
"Business Equipment: Buying vs. Leasing," by NOLO. Nolo's "mission is to help consumers and small businesses find answers to their everyday legal and business questions."
SBA's article is entitled, "Leasing Business Equipment." SBA.gov stands for small business administration. Anything coming from a website that is just for small businesses is handy and worth looking at if you are in the business world and creating a small business yourself.
"Buy or lease? It's a key question for businesses." This article is from USA Today, which is a national daily newspaper published by the Gannett Company. USA Today is the widest circulated print newspaper in the United States. Although this article is from 2006, it is still very credible, not much has changed. Rhonda Abrams wrote this article. She has written over 400 stories for USA Today. Abrams is the president of the Planning Shop and has published books for entrepreneurs. Her articles are mostly about strategies.
"Should You Purchase or Lease Business Equipment?" was written by Ryan Kernan from Business Know-How. This website is for small businesses, for ideas, advice, and resources. Kernan has written many articles for Business Know-How.
Peter Alexander wrote this article, "Should You Lease or Buy Your Tech Equipment?" for Entrepreneur. Entrepreneur is a website. Peter Alexander is the vice president of worldwide commercial marketing at
Cisco Systems Inc., the leading supplier of networking equipment and network management for the internet. He has written over 20 articles for Entrepreneur since 2005.
This is a calculator from CalcXML. They offer financial calculators online. This particular calculator is for lease vs buy business equipment. It is very easy to use and it will help you make your decision. It allows you to see which option is best for you by seeing how much you would be spending.
