The right business equipment is the engine of your small business’ success: whether it’s a truck or a server, a stove or a building. Up-to-date and effective equipment will be one of the most important investments a business owner will make, and no two industries are exactly the same when it comes to the requirements for managing your hard assets. Some businesses will look to purchase equipment that will last them the life of their business, while in other cases the fundamental tools you work with may need periodic updating or replacement.
One of the biggest considerations to weigh when obtaining new business equipment is: should you lease or should you buy? Both options have advantages and disadvantages based on your particular business situation, especially in relation to your cash flow management strategy. Many businesses, especially those with a highly predictable monthly income, choose leasing over buying in order to avoid large up-front cash outlays or credit burden. Generally speaking, you want to avoid paying for long-term assets with working capital, that is, the money you need to run your business, including buying inventory and carrying receivables. Doing so could hinder your ability to pay recurring obligations like rent, utilities or payroll if business conditions get tougher in the future.
Some of the advantages of leasing include:
- A lease makes it possible to stay up to date with new revisions or changes to your equipment requirements month-to-month.
- A lease might also make it possible to afford equipment that might otherwise be too expensive to purchase outright.
- Because leases rarely require a down payment, you can acquire new equipment without tapping much-needed funds.
- Some leases are structured with business tax claims in mind, and these can work to your advantage even if you plan to keep your purchase for its entire productive life.
Owning equipment – whether financed or purchased outright, on the other hand, confers its own set of benefits:
- Owned equipment is included in your assets and appears in the liability column of your financial statement.
- If you purchase equipment, it can be sold when it is no longer needed. If the lease term extends beyond the length of time you need the equipment, you could be making payments and storing equipment you don’t really need.
- Purchasing equipment offers some tax and depreciation benefits that don’t apply to a lease.
- You will own the equipment, so you can make any alterations necessary. Maintenance is also in your hands, so you can make sure problems get fixed immediately.
Addressing the financial requirements for a big equipment purchase or update can be a challenge, so it’s best to speak with a financial advisor or accountant before making a final decision. The alternative lending community is making it easier to obtain working capital to finance these kinds of purchases for many small businesses – find out if Merchant Advance can help you with your next upgrade.