In addition to all of the other critical decisions that business leaders make every day, many businesses require specific decisions about whether to lease or buy pieces of equipment or other physical assets. Figuring out whether to lease or buy has become a kind of complex equation, where what’s good for one business may not be what’s best for another. Business leaders need to use precise judgment and look at leasing or ownership on a case-by-case basis in order to manage their startups or other small businesses most effectively, and leave more profit for the business by cutting down on the cost of overhead.
Tax Burdens and Leasing or Owning Equipment
There are actually tax incentives for both leasing and owning different kinds of business equipment. On the leasing side, costs of leasing can be deducted as a business expense. Business leaders who choose to own pieces of equipment can also write off costs according to depreciation of the purchased item.
Simply speaking, leasing items that have slow depreciation is often a better strategy; on the other hand, business leaders can get more of a deduction buying pieces of equipment and other assets that can be depreciated more quickly.
Leasing vs. Buying and Obsolescence
Another issue with whether to lease equipment relates the obsolescence, which is basically a purchased asset becoming less valuable or even useless based on advances in technology. For items with low obsolescence, it’s often better to buy, because the business can use this object over many years and build up equity. Some of these items can even be resold later. By contrast, items that quickly become obsolete will not have the same equity value, and many business owners will choose to lease these types of equipment. Examples of quick-obsolescence equipment including computers, cameras and other devices that are consistently being reengineered and improved for the market.
Dynamic Supply Chains and Equipment Storage
Another issue with buying or leasing business equipment relates to how a business pursues operations at different locations and how it manages its supply chain. For a business that will use the same kinds of equipment consistently at the same locations, it’s often better to buy equipment and assets. When the need for equipment or other items is more sporadic, and when the business will use different items less permanently, leasing can often be a good option.
Making good decisions on leasing or buying equipment will get you more profit in the long run. It can also stand out to potential investors or backers, since these common-sense strategies will be reflected in your annual budget. Make sure you take time to craft a good strategy for managing all of the physical assets that you need to make your business work for you.