Own Versus Lease: Making the Right Decision for Your Business
When it comes to owning or leasing your equipment, you have a lot of options. Being informed of the short- and long-term details help you make the right decision for your business. In this article, we help navigate through the pros and cons of leasing and purchasing by exploring items such as equipment maintenance, tax obligations, advances in technology, and your overall project pipeline.
Reasons to Lease
- Technology plays an increasingly important role in the efficiency and productivity of heavy equipment, and with a leasing agreement, you can upgrade your equipment in real time without having to sell an older machine to free up operating capital.
- Leasing also helps manage your budget. Your costs in terms of both time and maintenance are identified upfront so you can plan accordingly and allocate expenditures without worrying about the uncertainties of unforeseen repairs or the need to replace an outdated machine.
- Leasing will not only help you manage your operating budget, but it will reduce larger, one-time expenses that will be required for the purchase of new equipment. More than likely you will be able to recoup the purchase cost of a new machine over time, but if you are sensitive to your immediate cash flow, a lease may be a good option for you.
Considerations Against Leasing
Leasing contracts will save you money on the front end, but your payments will also include interest along with the principal. Over time, that may be more than you want to spend. Build your financial model for both a lease and purchase option and see where you come out further down the road.
Leased equipment is tax-deductible, but at the end of the term, you have not built any equity in your machines and you do not own the asset. Again, run the numbers and make determinations as to whether owning the asset or renewing a lease puts you in a better financial position.
Before signing a lease, consider:
- The length of the term versus your anticipated need for the specific equipment;
- The maintenance contract and how it defines your level of accountability versus the owner’s, and
- The degree of flexibility within the lease should you need to change course to upgrade or utilize a new piece of equipment
Purchasing Advantages & Disadvantages
When you purchase equipment, you control your inventory and oversee its care and operation. You also have control if and when you want to sell it based on customer demand and scheduling, creating capital that can then be applied somewhere else if needed.
Purchasing your equipment will also encourage your operators to maintain its performance. Similar to homeownership, business owners have a vested interest in the upkeep of the tools that allow them to grow and succeed. And when you prioritize the service of your machines, their lifespans will increase and continue to serve you well for years to come.
And finally, keep in mind that no matter how well you maintain your equipment, its value will depreciate over time (but that too has its advantages when tax time rolls around).
Before you purchase, consider:
- The higher up-front costs which you will have to absorb on the front end of the purchase;
- The possibility of the equipment becoming outdated and less effective which hurts resale, and
- The potential limitations of expanding your work scope due to limited capabilities with your existing inventory.
Whether buying or leasing, make sure that you perform your due diligence. Your decision should align with your budget and project needs. In some instances, it may be useful to consider pursuing both options at the same time.
Fabick Cat is ready to assist you in making the right decision for you and your business. Learn more about leasing, owning or any of our support services at www.fabickcat.com.