There are cer­tain items of equip­ment, machin­ery and hard­ware that are essen­tial to the oper­a­tion of your busi­ness – whether it’s the deliv­ery van you use to run your home-deliv­ery food ser­vice, or the high-end dig­i­tal print­er to run your print busi­ness.

But when a crit­i­cal busi­ness asset is required, should you buy this item out­right, or should you lease the item and pay for it in handy month­ly instal­ments?
To buy or to lease? That is the ques­tion
Buy­ing new pieces of busi­ness equip­ment, plant, machin­ery or vehi­cles can be an expen­sive invest­ment. So, depend­ing on your finan­cial sit­u­a­tion, it’s impor­tant to weigh up the pros and cons of buy­ing or opt­ing for a leas­ing option.

First of all, let’s look at why you might decide to buy the item…

Buy­ing: the pros and cons:

• Pro: It’s a tan­gi­ble asset – when you buy an item, you own the item out­right and it will appear on your bal­ance sheet as one of your busi­ness assets. As such, by own­ing these assets out­right, you increase the per­ceived cap­i­tal and val­ue of your busi­ness. You can also claim the cost of the asset against your cap­i­tal allowance for tax pur­pos­es.
• Pro: It’s yours for the life of the asset – once you own the item, you have full use of the equip­ment for the dura­tion of the life of the asset. Your use of the asset isn’t reliant on you being able to keep up reg­u­lar lease pay­ments, and if your finan­cial cir­cum­stances change, then you can sell the asset to free up the cap­i­tal.
• Con: It’s an expen­sive out­lay – pay­ing for the item up-front is a large out­lay for the busi­ness and will require you to have the cash to cov­er this cost. Spend­ing a large lump sum in this way may take cash away from oth­er areas of the busi­ness, so you need to be 100% sure that this pur­chase is the right deci­sion and a sound invest­ment.
• Con: You may require extra fund­ing – if you don’t have the liq­uid cash avail­able to buy the item out­right, you may need to take out a loan. Asset finance is avail­able from fund­ing providers, but it does tie you into a loan agree­ment that will add to your lia­bil­i­ties as a busi­ness – reduc­ing your worth on the bal­ance sheet.

Leas­ing: the pros and cons:

• Pro: Leas­ing has a cheap­er entry point – if the item you need to pur­chase has a large price tag, leas­ing allows you to make use of the asset with­out the cost of buy­ing it in full. For start-ups and small­er busi­ness­es with min­i­mal cap­i­tal behind them, this can make leas­ing a very attrac­tive option. You may not own the asset, but you can make use of it – and this may be the dif­fer­ence between the suc­cess or fail­ure of your busi­ness.
• Pro: You can spread the cost – there is still an asso­ci­at­ed cost of leas­ing, but you can spread the cost over a longer peri­od, mak­ing it eas­i­er to find the nec­es­sary liq­uid cash to meet your lease pay­ments. With this mon­ey saved, you can then invest in oth­er areas of the busi­ness, help­ing you to expand, grow, and bring in more cus­tomers and rev­enue.
• Con: You don’t own the asset – there are dif­fer­ent types of leas­ing agree­ments. Under a cap­i­tal lease, you do own the asset (once you’ve paid it off). But if you opt for an oper­at­ing lease, this is a short­er-term lease, and you won’t own the asset at the end of the con­tract. Own­er­ship does have its advan­tages (includ­ing being able to sell off the asset if required), so it’s impor­tant to con­sid­er what kind of leas­ing agree­ment you’re enter­ing into and what the advantages/disadvantages may be.
• Con: You may pay more in the long run – most leas­ing agree­ments will attract addi­tion­al costs and inter­est on your agree­ment, so you may well end up pay­ing more than the mar­ket price for your asset in the long term. If you can cope with the high­er cost, this is fine, but bear in mind that buy­ing out­right may have offered greater val­ue.
• Con: You may lose the use of the asset – if you can’t keep up your lease pay­ments (due to poor cash flow, for exam­ple), then the own­er of the lease agree­ment may recall the asset. If this item is cru­cial to your busi­ness mod­el, los­ing this key asset can have a pro­found impact on your abil­i­ty to oper­ate. In this respect, leas­ing is a riski­er prospect, but also an eas­i­er option for busi­ness­es with less cash to splash.

Talk to us about whether buy­ing or leas­ing is the best way for­ward.

Whether you opt to buy or lease your equip­ment isn’t always a straight­for­ward deci­sion to make – so it’s a good idea to con­sult with your accoun­tant ear­ly on in the deci­sion-mak­ing process.

We’ll help you review your cur­rent finan­cial posi­tion, assess your avail­able cash flow, and look at your reg­u­lar cost base to decide whether buy­ing or leas­ing is the right thing for your busi­ness.