There are many benefits to leasing equipment, from both a practical point of view, and from a financial point of view.
Cash Flow Improvements
Leasing equipment can improve your cash flow, as you remove the need to pay a large upfront cost. even though you might see leasing as another expense, the cash you save now can be used to invest in your business in other ways to help you grow, and to help you with other expenses you might have to cover in your business. It also gives you more consistent and predictable expenses.
Taking advantage of new types of equipment can really provide a leading edge in terms of lowering costs or becoming more competitive. Depending on your lease agreement, you can keep upgrading to take real advantage of this.
Lease financing presents your business with potential tax benefits. In many cases, leasing not only provides businesses with a full deduction of lease payments against current earnings, but also preserves working capital that you wouldn’t have access to if you had to purchase your equipment upfront. It’s always a great idea to check with your tax advisor to determine the benefits for your business.
Improve your balance sheet
In accounting terms, monthly leasing payments are recorded as business expense vs that of purchasing, which is viewed as long-term debt. Minimising debt on your balance sheet will lead to you being more attractive when securing financing to fund your business.
So, when to buy and when to lease? If you’re only looking to make small purchases of equipment and you have sufficient funds or can obtain a low interest rate loan, then should just buy it, as you will save money in the long run. If you’re in the other group where you need substantial amounts of funds for the purchase, or your equipment is likely be quickly outdated, then leasing will generally be the best option for you.