Examining the Advantages and Disadvantages of Capital Buying Equipment

What are the advantages and disadvantages of capital buying? Is there an alternative? 

advantages and disadvantages of capital buyingRunning a business is never easy; it really doesn’t matter what type of field you’re in or how much experience you have. In addition to your particular skill set, you need to have a certain niche for managing multiple areas of a company at the same time, and these must include finances, advertising, people, and more.

You need a base of operations, whatever merchandise you’re offering, the necessary equipment, utilities, employees, and other physical objects that run your company, and it all ties back to your finances. Between rent, bills, utilities, payroll, and down payments to start your company, money will be tight in starting your company, and it always seems to just pile on.

One of the toughest purchases business owners have to make is always equipment; the hardware you buy makes the difference between a good and bad start to a business. Buying hardware is always a balance though; you can’t spend too much money due to a tight budget, but you don’t want to buy cheap equipment, as that will be damaging to you in the long run.

Many business owners decide to carefully examine the advantages and disadvantages of capital buying, and look for an alternative in leasing equipment.

How Leasing can be Negative for a Business

The main disadvantage to a lease is, like any other form of a loan, it’s a contract, and there are good and bad contracts that you need to be able to know the difference between. There are such things as ideal and non-ideal leases, and if you get a lease that doesn’t work for you, leasing becomes a huge liability to a company.

However, spotting a lease that works for you versus a lease that won’t work for you is not that hard, so making leasing work for your business is not too difficult. However, many business owners decide to just jump into leasing without examining the contract details or how leasing work, and end up with a headache in the form of monthly payments on equipment they don’t need and a high cancellation fee to escape.

The solution to getting a good lease is simply about knowing what your business needs and doing your research, like anything else in a company. Know how long you need the equipment you plan to get, know approximately how much you want to spend so you don’t get overcharged, and have the resolution to find that ideal lease.

Getting a lease is like getting a car: don’t just listen to the salesman and settle for the first good “deal” thrown your way; be picky, specify what you want exactly, and get what you want exactly. After all, it is your business to succeed or fail, and you only want the best for your company.

Advantages and Disadvantages of Capital Buying Equipment

Buying hardware can be great: nothing feels better than knowing all of the different equipment in your business is actually yours, and that’s an advantage in itself. You also get money towards the equipment if you claim it as a business asset, allowing you to decrease the expense of buying the equipment in the first place.

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However, you might find that buying equipment can put you more into hot water than be helpful in quite a few cases. For instance, any equipment you buy that either breaks down permanently or becomes outdated within a few years (which is a good percentage of equipment) is essentially money wasted if you spent a good deal of your initial funding on it.

Many business owners will get frustrated because they spent so much money only to get equipment that is more of a burden than an advantage after a few years, and equipment that lasts a long time is normally very expensive. Even with the advantage of claiming the equipment as a business asset, you’re still going to end up needing more money than you have to buy the equipment you need, which leaves you with a bank loan and an interest rate you probably don’t want.

Should you Buy or Lease your Equipment?

When examining the advantages and disadvantages of capital buying and comparing them to the upsides and downsides of leasing, you can see that they are both very case-by-case.

Leasing offers you the flat monthly rate over time versus paying up front with buying equipment, or paying an interest rate on a loan you took to fund your business. Leasing offers you tax deductibles while purchasing provides you with the benefit of claiming your hardware as a business asset.

However, leasing can put you in hot water only if you settle on bad leases, while purchasing equipment is normally detrimental in the long run, which is why many business choose to lease most or all of their equipment and save on money in the long run, allowing them to run their business more effectively.

To learn more about the advantages of disadvantages of capital buying versus leasing, click here.