Equipment Leasing Or Purchase? – A Common Problem

For many businesses today the question of whether to buy or lease equipment is not an easy question to answer. Businesses with older management teams tend to follow a traditional line and steer clear of what they see as 'getting into debt', preferring to wait until they have sufficient funds in the bank to allow for the purchase of equipment. Businesses with younger management teams, who have grown up in a world where credit is part of everyday life and waiting for anything is simply unheard of, will readily embrace equipment leasing in preference to purchase. So who is right?

As with most things in life, there is of course no 'black or white' answer to this question, but here are a few things which businesses should consider when looking at acquiring new equipment.

Do you need the equipment?

In the modern consumer world, where we are surrounded by billion dollar advertising, we have become conditioned to thinking that we must have all the latest toys and gadgets, if for no other reason than to keep up with the neighbours. But, do you really need this latest piece of equipment, or can you manage perfectly well with what you have?

How much are the costs of purchase and equipment leasing?

Having ascertained how much it would cost to purchase the equipment outright, calculated just how long it would take to pay this same sum in leasing fees. If the timescale is relatively short then leasing may prove an expensive option.

What is the position as far as maintenance is concerned?

Would you be responsible for the maintenance of any equipment leased, or would this responsibility fall to the leasing company? If you would bear the responsibility then do you have the necessary staff to carry out any maintenance work and what would be the likely additional cost of doing so?

Would you have the option to purchase the equipment at the end of the lease?

As many items of equipment depreciate rapidly in the early years of use, it may be possible to buy the equipment at a considerably lower cost at the end of the lease. This would give you the opportunity to put the equipment to the test and ascertain its true value to your business before committing yourself to its purchase.

Where does your business stand in terms of technology?

For many businesses, equipment purchased today will still be doing an excellent job in ten years time. For other businesses, however, advances in technology will require a rapid turnover in equipment. Take computers and software as an example. How many growing businesses today are moving forward with the same computer equipment they purchased two or three years ago?

How strong is your competition?

If your business operates in a highly competitive sector then financing activities, such as product development and advertising, will almost certainly be very high on your agenda. Equipment leasing may well permit you to fund these important areas of your operation, while purchase could eat deeply into your 'war chest'.

These are just a few points to consider when deciding whether to buy or lease equipment for your business. This is not always an easy decision and sometimes the answer will take you out of your comfort zone.

The bottom line for most businesses is, and should be, the effect that this decision will have on the growth and development of the business and how it will impact upon your competitive advantage.