Equipment, do we lease it, or do we buy it? This is a key question for every business here in Tamworth, the entire UK, and indeed, all over the business world.
Every business is reliant upon some type of equipment at some phase of their operations. Some do so to a greater or lesser extent than others. How you answer this equipment dilemma is a critical decision that directly impacts operating costs.
You see, this is a huge piece of strategic money management. It has often been said that it matters less how much money you have than how you manage the money you have. That is quite true in business as well.
Frugality is the order of the day if we are to be strategic money managers. However, frugality has its place. It can be misguided at times and end up costing far more than you hoped to save. As we Brits say, ‘Let’s have a butcher at it, shall we?’ ‘Bob’s your uncle’.
Equipment Leasing Defined
A lease is essentially a rental agreement. You agree to purchase the use of the equipment. You are buying use only. Ownership remains with the equipment maker, the leasing agent or owner.
Basically, the creator of the lease agreement sets forth the terms of use, payment method, schedule and duration of the lease. Usually, there is a flat rate cost with extra fees attached for use that goes beyond the stated terms.
If you decide to lease, carefully review any equipment lease before you sign it. Pay special attention to any restrictions. Use limits may make the agreement not worth the money spent.
Equipment’s Role
Whether you need to buy or lease equipment depends upon the role of that equipment within the overall business functions. Purchasing may make more sense if equipment is the central component of your business.
For instance, if you are a construction company or a trucking company, equipment is at the center of your entire enterprise. One tip for handling equipment purchasing is to buy used equipment in good shape. Look for fleet deals and other cost-cutting measures.
Conversely, if your business is less equipment-centric, buying may not be your company’s best use of its finances. You must do some careful calculations and have the complete picture in place with reasonable profit projections to justify equipment purchases.
The Buy Side
Again, the crux of the matter is the best money management practices. You must resolve the quandary of which is the most economically advantageous for the company.
Do we risk capital and spend funds to purchase equipment, or do we lease instead? Carefully consider the following before deciding to buy.
Pros or Cons
If you buy your equipment, you are presumably one and done. You have spent the money one time. You are now fully equipped to do business without equipment costs bedevilling your budgeting efforts and forecasts, right?
Well, not so fast. Equipment must be serviced, maintained and repaired. This is a necessary expense to retain and extend the life of the equipment long enough to justify your initial investment.
If your first ‘Pro’ is money saved up front, you might want to rethink that. Technically, it is money spent up front. That is money the company now does not have for operations.
So, you see, not only are there maintenance and upkeep expenses, but equipment has a nasty habit of breaking down at critical times, usually just past the warranty expiry.
You, as the equipment owner, bear that repair expense. These unforeseen expenses dramatically impact your financial bottom line. Talk to your local equipment leasing specialists. This service can help you avoid such financial catastrophes.
Additionally, buying the equipment outright involves risking capital. It is a risk because the business has the potential for success or failure.
Should the business fail, you also lose the money you spent on equipment presuming the business would succeed. Ever try to sell used equipment for what money you have in it? It is practically impossible. Used equipment usually goes for pennies on the dollar. A happy medium could be to buy refurbished equipment. Refurbished equipment is in great shape, but has a discounted price. You can find this option for just about everything from computers to even high tech refurbished gamma cameras that medical facilities would use.
Pro or Con Number Two
Company-owned equipment adds value to my company. True, as long as that company is profitable. What happens to the equipment owned by the company when the valuation of that company decreases?
Generally, everything within the company decreases in proportion to the whole. Oh, there may be nothing wrong with the equipment, but it is still worthless to a prospective buyer since the company is. Expecting the equipment to retain value while everything associated with it is losing value is wishful thinking.
Pro or Con Number Three
Buying equipment now lets me escape higher prices later. I mean, equipment, like everything else, does go up in price. If I buy now, I can save the company money. This is backward thinking. I am always amazed at how well this merchant trick works.
I have a question, how do you save money while spending it? Oh sure, you may capitalize on the ‘huge savings’, but you have just spent money.
You have not saved it. Saving is not spending, and spending is not saving, no matter what the merchants claim.
Reasons to Lease
Leasing your business equipment just makes the best money management sense. Take a look at the strategies behind the leasing mindset. See if you do not agree that leasing your equipment is the most fiscally strategic use of company funds.
No Huge Upfront Expense
Equipment is not cheap. Just to outfit a front office can be prohibitively expensive. Reception and waiting area furnishings can consume a goodly portion of a startup business budget. This is in addition to the expensive equipment some businesses require to conduct day-to-day operations.
Funds Management
Money not spent on huge equipment purchases is now available for use within the business. It can be used to meet payroll, employee medical insurance and other business costs.
It can be held in reserve for emergencies and times when business is slow. Never try to operate a business without capital reserves.
Maintenance and Service
Leased equipment normally has a maintenance and service contract included in the agreement. Regular maintenance and scheduled service is less expensive than an unexpected major equipment failure. It is also easier to budget into regular expenses minus such major surprises.
Conclusion
Working with an equipment leasing company is a smart business management decision. Leasing is a much more easily manageable way of doing business than taking on the expense and upkeep of heavy equipment ownership. Consider the advantages and give your company and yourself the best chance to succeed.