When you run a business, you get faced with a couple of ways to obtain things for it. You can either buy or lease them. There will be some circumstances where you can only buy products, such as consumables.
But, for items like machinery, equipment and vehicles, you have the option to buy or lease them. As you are reading this blog post, you are doubtless wondering which options are best for your company.
Keep reading to learn more of the pros and cons of leasing stuff for your business!
Pro: It will cost you less
When you buy something outright, you have to pay for it in one lump sum. When we’re talking about heavy machinery or vehicles, it can make an enormous impact into your company’s cash flow.
But, when you lease those items instead, you are effectively just “renting” them! You might have to pay a deposit equal to a couple of month’s payments. After that, you pay a fixed amount each month for a set period. In that scenario, you are free to use the remainder of your firm’s cash for other expenses.
Con: You don’t get to keep anything forever
One of the biggest downsides to leasing items for your business is you don’t own them. And you never will.
As I mentioned a moment ago, you are just renting those items. In some ways, it ensures that companies look after the items they lease. If they don’t, they could end up paying hefty penalties for repair work!
Pro: You get to have new things more often
Let’s say that you lease the vehicles on your company site. The perks of leasing cars are that, after a set period, you have the option to upgrade to a brand new model again.
Many businesses have company cars because it helps them to get seen as a professional and dynamic company. After all; you might feel reluctant to do business with someone driving around in an old banger!
But if you spot them driving to your premises in a new car, it gives you the impression they are doing well. And, as such, they are a company you could rely on for the future. Yes, that’s right; appearances really are everything in the business world!
Con: Not all things obtained on leases are tax-deductible
For the most part, the things you lease can get logged into your accounts system as an ordinary business expense. There are some exceptions to the rule. With leased vehicles like cars and trucks, you might only be able to claim back 50% of the VAT you get charged.
To claim 100% of it, you’ll have to prove the vehicles you are leasing are only used for business purposes. That’s easy to do if you are leasing a lorry or dumpster truck. But with passenger cars, it can get more difficult.
Sure, it’s easy for people to lie and say they don’t use the cars for personal reasons when they do. But tax authorities are wise to such tactics. And they will sometimes investigate firms they suspect of committing tax fraud.
Pro: You don’t spend as much
Leasing is a great way to keep your company’s finances in check! That’s because you can factor in approximate costs. Leases get paid for on a monthly basis. When you buy products outright, the amount you spend will vary.
If you buy things often, it can be difficult to determine what your average monthly expenses are in the business. But when most of your expenses are on leases, you can figure out what those average costs might be.
Leasing helps you to spend less each month, believe it or not. Rather than spending money in one lump sum, you can spread your costs out every month. That gives you the freedom to conserve your cash flow so that you won’t panic about money!
Con: Your bad credit might prevent you from getting a lease deal
Before suppliers can give you the products and equipment you need, they will ask you to apply for the lease. As part of the application process, they will do a credit check both on the company and its directors.
If you or any other directors have got a bad credit record, the finance company might decline your operation. As you can imagine, that’s bad news if the thing you need is crucial to the growth and development of your business.
Of course, you have the option to apply for a lease deal from another supplier. But, the more you apply for credit in a short period, the less likely your chances of getting a “yes” are.
That’s why if you are considering applying for leases, you need to make sure your personal finances are in order. The sad truth is that they get scrutinised as much as your business finances do.
Pro: Leasing protects you from obsolescence
When you buy an item, you’re stuck with it. OK, so you might sell the product or machine you bought in the future. You can’t guarantee that a) it will sell or b) you’ll get a good price for it in a few years’ time!
It’s a problem that many a business owner faces when deciding whether or not to purchase something. Of course, you don’t have that issue when you opt for leasing instead! Most lease contracts offer terms where, after a fixed period, you get upgraded to a new model.
Examples include computer, photocopier, and water cooler leases. In some cases, you can even specify those terms for vehicle leasing too! Leasing is a great way to ensure you always end up with the latest technology at your disposal.
The last thing you want to happen is be known as the company that uses ancient equipment in such a tech-savvy world! Another benefit is the reduced risk of breakdowns (from the machines, not you)!
Newer equipment is less likely to fail than older models. That means your maintenance costs are low!