Whether you need to purchase a vehicle, some computer equipment, or a bigger warehouse to expand your business or to operate more effectively, take the time to consider how each purchase might impact your operating capital.
Usually long term it’s cheaper to buy an asset than lease it. Remember you won’t be able to claim the entire amount paid as a business expense – the value of asset is depreciated over several years.
When you lease an asset, you’re renting it for a set period of time. The leasing company retains ownership of the asset while your business has the exclusive use of it for the term of the lease.
A lease will typically run for anything between 12 and 60 months. Once the agreement is entered into, both parties are obligated to see out the term of the lease.
Throughout the course of the lease agreement, you’ll pay the lender regular instalment payments for the right to use that asset. For accounting and bookkeeping purposes, some leases can be classified in the same way as an asset purchase and can be capitalised on your balance sheet.
A hybrid option is to finance the asset with a bank loan. You get the benefits of both; you own the asset and have monthly repayments:
Talk to us about our range of asset finance solutions – we can help expand your business without tying up your finances.
Before deciding whether to buy or lease, it's prudent to take a few important factors into account, such as:
There are usually options where the lease agreement can include upgrading the asset to a newer model once the agreement expires.
Likewise, some lease agreements may also include maintenance and servicing costs. By leasing some assets, you could avoid paying any upkeep costs associated with them, saving your business money over the long term.
It's important to look closely at any lease agreement before you sign it. You may find that some agreements:
Always be sure that you understand the terms of an agreement before you sign it. It's also smart to run a cost comparison and a cash flow analysis between leasing an asset and buying one with funds from a small business loan.
Discuss with your accountant the potential impact that leasing or purchasing may have on your cash flow and ask what alternative options might be available.
POSTED IN: Finance advice,2017