Every kind of business will eventually need new equipment, whether that’s factory machines, furniture, vehicles, or copiers. Whatever your organization needs, you’ll be faced with the choice of buying or leasing your equipment.
As Certified Public Accountants, we wanted to share with you the benefits of each of these financing options, the potential pitfalls, and how to come to the best decision for your organization.
Benefits of Leasing
- You can acquire updated technology more quickly and easily. For example, if you will need to update your equipment on an annual basis to remain competitive, leasing allows you to avoid being stuck with outdated equipment.
- Leasing companies offer longer lease terms and therefore, lower monthly payments, than those of a typical equipment purchase loan.
- With leasing, you don’t pay for maintenance. If something breaks or has issues due to normal wear and tear, the leasing company is in charge of fixing the equipment.
- Leasing is also more flexible than a purchase since, at the end of the lease term, you have three options:
- Purchase the equipment you were leasing.
- Return the item and lease a new piece of equipment.
- Re-new the lease on the existing equipment
Cons of Leasing
- You usually pay higher costs over time than you would if you paid up-front.
- Since you don’t own the equipment, you won’t have the option to sell the equipment once you are finished with it, so there is no potential to make any money back.
- The available length of lease terms may be longer than you need. Strict agreements may force you to pay for and keep a piece of equipment for a longer time frame than you require, resulting in wasted funds and space.
- Maintenance is up to the leasing company’s specifications, so it may be difficult to get things fixed.
- You’ll have fewer choices since most lessors will only finance their own brand of equipment.
Benefits of Buying
- You own the equipment, so you can make any alterations necessary. Maintenance is also in your hands, so you can make sure problems get fixed immediately.
- You have the option to sell the equipment when you are finished with it, allowing you to recover some of the cost.
- Tax incentivesunder Section 179 of the IRS Tax Code are larger for purchasing office equipment but have limits. If your equipment doesn’t qualify under Section 179, be sure to talk to a CPA about how you can leverage a depreciation deduction.
- Buying is easier because you don’t have to deal with lease agreements and contracts. You simply pick out what you need and pay for it.
- You have complete control over what you get because you aren’t limited by a leasing company’s stock.
Cons of Buying
- You will have a higher initial cost as opposed to lower monthly payments that may be easier to budget. Higher initial costs may also keep you from buying exactly what you want and force you to settle for a lower-cost option.
- If you buy a piece of technology that is quickly outdated, then you are stuck with it.
- You are responsible for all maintenance, including costs. This can get pricey depending on what issues you encounter. Be sure to ask about the product’s warranty before you buy.
The Bottom Line
The bottom line is that there’s no clear-cut winner when it comes to the buy or lease debate. It all depends on your organization’s needs and cash flow. But if you analyze your organization’s financial picture and carefully consider the pros and cons of buying vs. leasing, you’ll arrive at the best decision.
If you need help determining whether you should lease or buy equipment for your organization, contact the tax experts at Tobin & Collins. We provide financial and tax reporting services, and go a step further than most other firms to provide strategies and recommendations for improving business operations.
For over 50 years, Tobin & Collins has provided accounting, tax, and business support services to clients in the New Jersey and New York metropolitan area. Our exceptional team of professionals provides personal service to ensure we resolve each client’s financial challenges and provide sound financial strategies that puts clients on the path to future success. Contact Tobin & Collins today.