If you run a local business that is growing, there’s a good chance that, at some point, you’re going to have to invest in new vehicles or equipment. When you do, you will have two major options: leasing them or buying them.
Each of these options has pros and cons, so let’s take a closer look at what they are so that you can make an informed decision.
Leasing equipment and vehicles is an attractive option for many small local businesses because it’s often quicker and cheaper to access this kind of financing than it is to finance a major purchase.
Leased equipment often comes with a maintenance plan, which means you can get the equipment fixed and serviced easily and at low or no cost. This is also beneficial for your cash flow because you don’t need to worry about those extra costs.
However, leased vehicles, in particular, usually have an annual limit on how much they can be driven. Once you go over that threshold, you will pay a premium for any additional use age.
When it comes to purchasing equipment, there are pros and cons too.
On the one hand, when you own the equipment, you can use it as much as you like without penalties. It’s also tax-deductible, which can reduce your annual tax bill. In fact, many local businesses wait until just before tax season to make capital purchases to maximise their deduction without paying for the purchase all year.
However, purchasing equipment or vehicles with traditional finance is usually more expensive, so that you will pay more for the item. You probably won’t have as many warranty or maintenance options built into the deal.
Some people might wonder whether there are insurance benefits to leasing versus purchasing, but this is not significant since insurance rates are based on the value of the item and your risk profile.
You also need to ensure that you cover the cost of your leased or financed equipment in your rates to customers. So if you’re investing in new vehicles or equipment (no matter how they are funded), be sure to review your pricing and make sure it’s still enough to cover those additional costs.
Purchasing or leasing new vehicles or equipment is a big decision and commitment. So make sure when you do it, it’s because there’s a genuine business need for increased capacity or productivity.