Quite a few misconceptions float around the question of whether to lease or buy an asset for your business. Myths arise from what we want to do, as opposed to what’s best for our business – shiny new ute, anyone? – or from what works best for the salesperson you’re talking to. This blog only looks at operating leases, that is, leases where you pay a set amount each month but you don’t end up owning the asset.
The mythology is also helped by the fact there is no hard or fast answer – sorry about that.
Once you’ve signed that lease agreement, you really have no (easy) out for the term of the agreement. Breaking the lease early usually results in a lump sum payment to get out of it.
If you’ve bought an asset, all you have to do is sell it again.
Fact: You can claim depreciation on assets for tax purposes
After you take depreciation into consideration, it often works out pretty much the same.
There is rarely a significant tax difference between buying and leasing.
Fact: It’s usually more expensive
When paying off an asset, you’re paying interest and principal and at the end of it, you own the asset.
With leasing, you pay for the convenience.
Fact: It all depends on whether you have that in your lease agreement
You get charged more to have that kind of cover,
If it’s a new asset and/or under warranty, would you need that added protection?
Fact: If you have the cash, it may well be
However, do you always want to wait for cash surpluses before expanding your business?
Sometimes there is a business case for leasing now to generate more revenue.
- How much extra revenue will the asset generate? Or how much will it save on costs? For example, buying yourself a shiny new ute may well make economic sense if your old one is costing you a lot on maintenance.
- Whatever the asset is, do your homework. Compare all options from a second hand asset to a range of new options. What’s the cost? Is the seller offering any great deals on loans?
- Check out a range of options from the seller to your bank to find the cheapest interest rates you can find.
- Consider also how much commitment you want to this asset. If you need to get rid of it before the term is up, then buying is definitely a good option.
Finally, why don’t you give us a quick call or flick an email through to email@example.com? We can usually help you sort this out.
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