Buy or Lease? Business Plant and Equipment
When your business needs new plant or equipment, what’s the best choice – buy or lease? The answer will depend on your circumstances, but the following considerations can help you weigh the options.
The advantages of buying
Buying gives you certainty and ownership at a higher upfront price but a lower total cost. Owning an item of plant or equipment gives you unrestricted use for the item’s lifetime. You can alter it to suit your business and sell it if you need to free up some cash. The total cost is paid upfront, so you have no ongoing payments, and there may be opportunities for tax depreciation.
Ownership can be a particularly good choice when equipment lasts for a long time and maintains its value. Overall, the total price of ownership is usually lower than the total cost of leasing the item.
The advantages of leasing
Leasing tends to give you more flexibility at a higher cost. It spreads out the cost of an expensive item – you don’t need to save or borrow the purchase price; instead, you make regular payments. You can return a leased item if it’s not working out or upgrade to a better model as your business grows.
If the equipment or plant quickly becomes obsolete, you’re likely to upgrade, or you’re not totally sure it is right for your business, leasing could be ideal. While leasing is generally more expensive across the item’s lifetime, it also frees up your money to invest in other areas of the business.
Running the numbers can help you find the right decision
The decision to invest in new plants or equipment can be tricky, but we can help. We can tally up the upfront and ongoing costs and weigh these against the economic benefits you might get from the new equipment. We consider your cash flow, the cost of borrowing, and sales projections so that you can make an informed choice.
Drop us an email or give us a call – we’re here to help.