As business owners, or even working in accounting for a business, it is imperative to know the facts about making an informed business decision when it comes to purchasing or leasing equipment. Every company wants to maximize revenue and profit, and a decision such as whether to lease or purchase equipment could potentially make a significant difference. Pros to leasing
Financially the needs of the company will vary and hence, the need to review the pros and cons of leasing may weigh more one versus the other. The Pros of leasing are; (Staff, 2015, ¶ 5) requires no down payment, while a loan often requires 25 percent down; Requires no restriction on a company’s financial operations, while loans often do; Spreads payments over a longer period (which means they’ll be lower) than loans permit; and Provides protections against the risk of equipment obsolescence, since the lessee can get rid of the equipment at the end of the lease.” There may also tax benefits in leasing. Lease payments are deductible as operating expenses if the arrangement is a true lease. Ownership, however, usually has greater tax advantages through depreciation. Naturally, you need to have enough income and resulting tax liability to take advantage of those two benefits. Cons to leasing
Pros to purchasing
Purchasing equipment has tax advantages and the economic value of an asset is maintained. (Staff, 2015, ¶ 7)“Lessees have been known to grossly underestimate the salvage value of an asset. If they had known this value from the outset, they might have decided to buy instead of lease. Further, you must never forget that a lease is a long-term legal obligation. Usually you can’t cancel a lease agreement. So, it you were to end an operation that used leased equipment, you might find you’d still have to pay as much as if you had used the equipment for the full term of the lease.” Cons to Purchasing
Analyzing the pros and cons of leasing equipment versus purchasing equipment is a necessary and advantageous process for a business to ensure that all opportunities to maximize revenue are being met. Using charts and graphs with coordinating values will aide in making an informed and educated business decision. After review of all the material and the pros and cons it may be best to purchase equipment due to the tax advantage and the ability to sell equipment.
Staff (2015, ). Lease Versus Buy Equipment Decision. Biz Moves Guide. Retrieved from http://www.bizmove.com/general/m6l.htm