When comparing the advantage and disadvantage of leasing to that of purchasing equipment, how should a business get their equipment?
When it comes to your company, every decision you make is both important and will have an impact on you and your business in upcoming times. Weighing every choice you make as far as pros and cons is very important, because one bad choice can severely cost you in the long run.
Many business owners will do hours upon hours of research, looking for every little advantage and disadvantage, no matter how minute they are. Almost all of the important choices you make for your business are directly tied to your finances; after all, a business has many parts associated to it, and how you allocate your funds to keep the business going is crucial.
This is especially challenging when your business is first starting, because you haven’t made any money yet and have to rely on capital. Plus, you have to purchase just about everything a business could possibly need, from the building and everything that goes with it to stock and equipment.
Equipment Demand for your Business
Depending on the business, getting equipment can be quite a headache just because they need quality in their equipment and even low quality hardware is too expensive to manage. What can you do for this equipment?
Should you lease more expensive hardware or take out a bank loan and buy it? Plus, if equipment is in your price range, should you buy it or take one of the other avenues to acquire equipment?
Is there a disadvantage of leasing that makes purchasing more worthwhile? The answer is a no-brainer when it comes to really inexpensive equipment like basic tools that you don’t need a lot of: if you can just buy it, you might as well, because it’s easy to replace and lasts a while.
The trick comes when equipment ramps up in price, quantity, and quality; for example, a computer is a common tool that many people have dished out the few hundred bucks to pay for. Computers do break or become outdated after a few short years though, and we’ll replace our own computers with no issue just because it’s one easy replacement after a few years.
Purchasing your Hardware
As a business owner, you do have to think more long term before making these purchases: buying just one computer for your business may not be an issue, but what if you need ten?
If all of those computers break down at the same time, that’s a huge bill to either repair them or replace all of them, and those may be funds your business still doesn’t have.
This is usually where purchasing gets a little dicey: all equipment will break and need to be repaired and, eventually, replaced, and depending on how expensive the equipment is, it may put your business in a bit of a pickle.
Plus, many companies need the latest new thing, and paying to upgrade your hardware every few years can be exhausting on your bank account.
Getting a Bank Loan for your Business
This issue can be increased exponentially if you get a loan, which is why businesses should take great caution before taking out a bank loan. The reality of the matter is, it will take a few years for your business to get on its feet financially; it won’t be an overnight success and will require quite a bit of work and time to get to a good place.
If you add in the wrong loan to that picture, all you end up doing is accumulating more debt due to the interest rate, no matter how low it is. What happens if your equipment breaks and you still haven’t paid off your loan?
Any surplus funds that were going to pay for the loan have to go into fixing or replacing the hardware, which is why a loan is something you should get only if you know you can pay it off in a reasonable time.
Advantage and Disadvantage of Leasing
On the other side of the spectrum is leasing, a contract that allows you to get a hold of whatever equipment you need in exchange for a low, flat monthly rate. With leasing, there are advantages like equipment repairs, upgrades, and tax deductibles, but there is a disadvantage to leasing you should be wary of.
Leasing is a contract, and like any contract, the devil is in the details; if you were buying a car, you’d shop around for the best deal to avoid getting a car less suitable for you. It doesn’t mean that other car is a bad deal; it just means that the car is something that’s not right for you to buy.
The same is with leasing; some leases are for smaller versus larger businesses, while others are for newer versus older businesses. The best thing to do for your business to avoid getting caught in the disadvantage of leasing is to know what you want for your ideal lease as far as what you can pay and how long the contract should be, as well as other deals leasing can offer you that you want.
That way, you get the best lease possible for your company. To learn more about the advantage and disadvantage of leasing, click here.