Are you currently looking to purchase new machinery? If so, you will have a lot of factors that you need to take into account. One of the first decisions you must make is whether you should lease the machine or if you should purchase it outright. The truth is – there is no right or wrong answer. It is all about determining what is right for your business, your financial situation and your needs. In this post, we will take a look at both options in further detail in order to help you make the right decision for your business. So, keep on reading to find out everything you need to know…
First and foremost, it is imperative to establish what the difference between the two options is. When you buy a machine, you are purchasing it outright and so you have full ownership of it. So, what is leasing? This is when you have a contract with the company or individual that owns the machine. This contract grants you exclusive use of the machine for a set period of time – this is usually anything from one year to three years. It all depends on where you are getting the machine from. You will then pay for it on a monthly, quarterly or yearly basis. Yet, your payments are simply lease payments, you will obviously not pay anywhere near as much as you would if you were going to buy it outright.
Cost is obviously one of the main factors that must be taken into consideration when choosing between both options. Yes, buying is more expensive, yet you get a lot more in return – you actually have something to show for your money. When choosing between the purchasing and leasing of business machinery, you have to consider the different kinds of costs you are going to experience.
When it comes to leasing you will have the following expenses…
– Lease penalty expenses
– Up front charges
– Tax reduction
– Lease payments
When it comes to purchasing business machinery you will have the following costs…
– Salvage value
– Interest cost on investment
– Functional depreciation
– Tax reduction
– Tax depreciation
– Loan payments
– Down payment
Of course, there are other costs that are going to be exactly the same for both options, such as fuel costs, and therefore there is no need to include them. By taking into consideration the different types of costs you can determine which ones are going to be more manageable for you.
It is also worth noting that some companies offer a lease to buy option. What is this? This is when you lease machine the vehicle as state earlier, for a certain period of time. Nonetheless, at the end of the contract, you then have the option to purchase it. If you do so, the amount you have spent will be deducted from the total cost of the vehicle. If you do not want to buy the business machinery you simply hand it back over.
On a final note, you will want to consider how central the machine is going to be to your company’s operations. If it is going to be at the core of what you do, which is common for daily equipment like wacker plates and tractors, then you will probably want to go down the purchasing route. However, if you are not going to need it in the long-term or on an extensive basis, leasing can be more attractive.
Hopefully, you now have a better understanding of the mechanics that are involved in both buying and leasing business machinery. This should help you to come to a decision regarding which solution is going to be the best for your business specifically. Remember, leasing is not better than buying and vice versa, it’s all about determining what it is going to be the most suitable for you.