When it comes to examining leasing vs buying, which is the better choice for a start up business?
From restaurant owners to fitness centers to farms and janitorial services, equipment is a necessity. All business owners know the struggle of handling the management of expenses versus profit, but, depending on the trade you get into, the equipment you need can be the most expensive part of your company.
Many brand new restaurants fall prey to paying absurd amounts of money just to have some decent ovens and dishwashers, new gyms want variety and end up losing money they could’ve spent on a better building, and farms can’t afford to raise the level of crop they grow just because they can’t pay for the necessary equipment.
There are many businesses who want to avoid taking high loans and spending too much money, but the price of equipment is simply too much for them, and that’s why the alternative of leasing has become common for more expensive startup companies.
For example, restaurants will cut their expenses massively just to get better equipment leased to them. That way, upon starting their business, they can make enough of a profit to either keep leasing the equipment or actually buy the equipment they want.
This is where examining leasing vs buying comes into play: for businesses like gyms, restaurants, etc., that are just starting up, is it better to lease the equipment and save money or buy the equipment and actually own it? What are the pros and cons of both?
Buying: Does Owning the Equipment make it Worth the Price?
In the case of equipment that won’t become outdated or break down easily, buying equipment can be great in the case of ownership: more than likely, the piece of equipment you buy will last a while and won’t need to be replaced for any reason.
Claiming ownership of equipment allows you to calculate that into your assets as well, getting you more tax incentives. This is all great if you actually have the money to buy equipment that is likely to last a long time and won’t be replaced, which is very rarely the case.
A good example of this is farming; tractors and other types of farm equipment haven’t changed and won’t change and last a while, but they’re also pretty expensive.
Price is a huge disadvantage, but normally equipment you buy will either degrade over time or be outdated within a few years, making ownership of the equipment essentially pointless. In the case of restaurants, having ovens and microwaves that break after a while or become less efficient than higher class ovens that the competition may be buying can be extremely detrimental to your business.
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Leasing: Do you need to own the Equipment for your Business to Succeed?
Leasing equipment can provide you huge advantages over buying the equipment because you get very well running equipment at much lower prices, and the equipment can be upgraded, so you’re not stuck behind technological advances. In addition, not worrying about your equipment breaking down is a huge upside to leasing the equipment.
Terms of leasing are often very flexible when it comes to bad credit or negotiating for payment versus costs, and leasing can assist you with your tax deductibles. The main downsides to leasing equipment are ownership and how the lease term works, which are both problems that can be worked around in the case of larger equipment if you’re smart about your lease.
Not owning the equipment means you can’t build equity in the equipment, which is only a downside if the equipment lasts a long time, which most equipment does not. The other disadvantage of leasing lies in the lease term and primarily comes from business owners picking bad leases.
A lease requires smaller payments over time and a cancellation fee if you decide you don’t want the equipment any longer, and many business owners will buy equipment that isn’t worth leasing, make payments that are ridiculously overcharged, and end up trying to get out of the deal only to find a huge cancellation fee in wait.
In many cases, you can avoid a cancellation fee depending on the lease you get, and you won’t need to worry about equity because of the type of equipment you buy.
Leasing vs Buying
When it comes to comparing leasing vs buying a new business’s equipment, there are many factors to consider, and the main one is normally money gained/lost in the long run. That’s why doing your homework with equipment is extremely important when you decide on leasing vs buying.
There are some types of equipment that are pointless to buy in the long run while others should be bought, while others are better or worse with a lease.
When running businesses with expensive equipment like restaurants, fitness centers, and more, it’s oftentimes best to look at the value of a piece of equipment as far as a lease versus buying and the actual value of the equipment when it comes to equity.
Doing your homework and finding a good lease is also extremely important too, because oftentimes in businesses that need good equipment, you’ll find that leasing is the best option. Most businesses can’t even start up well without a lease on their more need equipment, and getting a good lease can be the key to that business lasting a long time. To learn more about leasing vs buying equipment, click here.