Very few businesses can launch without some sort of equipment. Even the simplest of on-line enterprises can’t get off the ground without a laptop and a printer. As a new business owner, you are going to have to decide if you want to lease (hire) or buy the equipment that you need. There is no right answer. It is up to you to carefully weigh up the advantages and disadvantages and work out how they apply to your own individual situation. You will need to take financial and practical considerations into account when deciding on company machinery, electronics, and equipment.
Don’t make the wrong decision when it comes to renting vs owning business equipment, it could end up costing your business a lot of money.
More On Hiring Or Leasing Equipment
When you rent or lease equipment you are entering into a formal legal agreement with the owner of the equipment. It is like a contract and you both have rights and responsibilities. You will usually have to sign a written agreement at the start of the lease or hire agreement. Basically, the owner agrees to allow you to use the equipment but this may be for a fixed period of time. In return, you agree to pay a specified amount of money which could be a one-off fee or a monthly fee. You may also have to agree to return the equipment in a good condition. There may be minimum or maximum periods for the lease to run and penalties if you break the terms of the agreement.
Why would you want to lease equipment?
Leasing is a good option for start-up businesses. It means that you don’t have to use up your capital and gives you flexibility. The downside is that it may end up costing you more money over a prolonged period of time.
The single major advantage is that there will be a lower initial expenditure. This is a huge issue if your business needs high-value, specialist equipment. Earth moving equipment hire is the obvious solution for a new construction, agricultural or landscaping businesses. You can start off with the assets that you need with minimal initial expenditure. In fact, you may be able to get started with zero expenditure as some lease and hire agreements require no down payment at all.
Depending on the country and the State that you operate in, the lease payments may be tax deductible which means that you can take these payments off before your profits are calculated for tax purposes. You will need to check the specific tax regulations that apply to your sector and the area where you are operating so get some expert advice.
Leasing offers you a highly flexible option. If you only need the equipment for a short period of time, you only pay for it for that time. If you are stuck with a bad credit rating, you can still get hold of what you need to take your business forward. It prevents you having to find (and pay for) storage for large plant and machinery that you use infrequently. You are also protected from insurance costs as these are usually covered by the owner. If the equipment breaks down, you simply call them and they have to sort out a repair service or send you a replacement.
Your business will do better if you have access to the latest models and cutting-edge technology. You can avoid obsolescence altogether. This is especially relevant for equipment that becomes outdated in a short period of time. When a new model becomes available, you simply hand back the outdated version and pick up the new model.
Things To Bear In Mind About Leasing Equipment
Leasing is not the cheapest option in the long run. If you lease for a prolonged period of time, it will cost you far more than buying the equipment in the first place and you do not even own it at the end of the agreement. You have no asset that you can sell to get some money back.
You may not have complete flexibility. Some rental and lease agreements tie you in for minimum periods of time. This means that you are paying for the equipment even when you are not using it and this makes little financial sense.
Would Buying Be The Best Option For You?
If you like the thought of owning an asset that you could sell if you need to, buying equipment may be your best option. This is a sensible approach for equipment that you use often and that will not become outdated. There may be some tax breaks associated with purchasing some equipment so it is worth speaking to a business financial advisor about this.
However, if you have to borrow the money to buy the equipment and pay interest on the loan, this may not be the most financially prudent option. You may not be able to borrow the full cost of the equipment and you may be required to pay a proportion from your savings. This could be up to 20% of the purchase price and for expensive equipment, this adds up to a large amount. Once you have borrowed this large sum, lenders may be reluctant to lend you any more money for things like expanding your business and marketing.
The other problem with buying is that you can get lumbered with old equipment. Some out of date equipment has very low resale value because no-one wants it. It could be very hard to get replacement parts if something goes wrong with it and it may not be compatible with other more modern technology.
The value of some items, especially computer-related equipment, can fall within a year of you purchasing it. You are often better off waiting a couple years or even purchasing it as refurbished equipment after another company doesn't need it any longer.
More On Hiring Or Leasing Equipment
When you rent or lease equipment you are entering into a formal legal agreement with the owner of the equipment. It is like a contract and you both have rights and responsibilities. You will usually have to sign a written agreement at the start of the lease or hire agreement. Basically, the owner agrees to allow you to use the equipment but this may be for a fixed period of time. In return, you agree to pay a specified amount of money which could be a one-off fee or a monthly fee. You may also have to agree to return the equipment in a good condition. There may be minimum or maximum periods for the lease to run and penalties if you break the terms of the agreement.
Why would you want to lease equipment?
Leasing is a good option for start-up businesses. It means that you don’t have to use up your capital and gives you flexibility. The downside is that it may end up costing you more money over a prolonged period of time.
The single major advantage is that there will be a lower initial expenditure. This is a huge issue if your business needs high-value, specialist equipment. Earth moving equipment hire is the obvious solution for a new construction, agricultural or landscaping businesses. You can start off with the assets that you need with minimal initial expenditure. In fact, you may be able to get started with zero expenditure as some lease and hire agreements require no down payment at all.
Depending on the country and the State that you operate in, the lease payments may be tax deductible which means that you can take these payments off before your profits are calculated for tax purposes. You will need to check the specific tax regulations that apply to your sector and the area where you are operating so get some expert advice.
Leasing offers you a highly flexible option. If you only need the equipment for a short period of time, you only pay for it for that time. If you are stuck with a bad credit rating, you can still get hold of what you need to take your business forward. It prevents you having to find (and pay for) storage for large plant and machinery that you use infrequently. You are also protected from insurance costs as these are usually covered by the owner. If the equipment breaks down, you simply call them and they have to sort out a repair service or send you a replacement.
Your business will do better if you have access to the latest models and cutting-edge technology. You can avoid obsolescence altogether. This is especially relevant for equipment that becomes outdated in a short period of time. When a new model becomes available, you simply hand back the outdated version and pick up the new model.
Things To Bear In Mind About Leasing Equipment
Leasing is not the cheapest option in the long run. If you lease for a prolonged period of time, it will cost you far more than buying the equipment in the first place and you do not even own it at the end of the agreement. You have no asset that you can sell to get some money back.
You may not have complete flexibility. Some rental and lease agreements tie you in for minimum periods of time. This means that you are paying for the equipment even when you are not using it and this makes little financial sense.
Would Buying Be The Best Option For You?
If you like the thought of owning an asset that you could sell if you need to, buying equipment may be your best option. This is a sensible approach for equipment that you use often and that will not become outdated. There may be some tax breaks associated with purchasing some equipment so it is worth speaking to a business financial advisor about this.
However, if you have to borrow the money to buy the equipment and pay interest on the loan, this may not be the most financially prudent option. You may not be able to borrow the full cost of the equipment and you may be required to pay a proportion from your savings. This could be up to 20% of the purchase price and for expensive equipment, this adds up to a large amount. Once you have borrowed this large sum, lenders may be reluctant to lend you any more money for things like expanding your business and marketing.
The other problem with buying is that you can get lumbered with old equipment. Some out of date equipment has very low resale value because no-one wants it. It could be very hard to get replacement parts if something goes wrong with it and it may not be compatible with other more modern technology.
The value of some items, especially computer-related equipment, can fall within a year of you purchasing it. You are often better off waiting a couple years or even purchasing it as refurbished equipment after another company doesn't need it any longer.
Conclusion
You will need to weigh up the right options for your company. Consider the type of equipment and the cost of leasing compared to purchasing and resale value. Look at your cash flow projections and work out if that money could be better spent elsewhere. Whether buying or leasing, you should always shop around for the best deals.
I hope you enjoyed this article about whether you should buy or hire / lease your business equipment.
Interested in more articles about business equipment?
Read My Posts:
- 4 Modern Office Makeovers On A Budget
- 5 Great New Devices To Boost Your Small Business
More Bootstrap Business Blog Below
You will need to weigh up the right options for your company. Consider the type of equipment and the cost of leasing compared to purchasing and resale value. Look at your cash flow projections and work out if that money could be better spent elsewhere. Whether buying or leasing, you should always shop around for the best deals.
I hope you enjoyed this article about whether you should buy or hire / lease your business equipment.
Interested in more articles about business equipment?
Read My Posts:
- 4 Modern Office Makeovers On A Budget
- 5 Great New Devices To Boost Your Small Business
More Bootstrap Business Blog Below
