Lease or buy equipment?

Shawn G.

New member
We may need to add equipment for next year, so i'm trying to do some preliminary research.

What are the advantages / disadvantages to leasing vs. buying equipment outright? Or buying on credit?

What are your opinions?
 

Warren Smathers

New member
The question of buying or leasing equipment is one filled with variables. Basically, you need to think of capital and cash flow as your oxygen bottle. You only have so much, and if you run out you die. Leasing allows you to purchase more equipment at a lower monthly payment, but often costs more in the long run than buying. Buying allows depreciation, but ties up capital. In my personal case, I have avoided debt like the plague in the startup of this business. That has meant foregoing the very best equipment, etc for the short term. It has, however, allowed me to firmly keep my overhead very low, which is essential. It really depends on your business plan. If you want to expand quickly, you will pretty much have to lease or get a loan, because earnings will lag behind your purchases. To stay on a cash basis, the growth rate will need to be more moderate.
 

Walter

Member
Leasing

If you need a peice of equipment and you have no cash you lease. If you have cash you buy. Have no cash and you have the work for equipment you lease. Have no work you dont lease. Their is no benifit to paying an extra 30%.
 

Michael

New member
The short answer is it depends on where you are located. Some tax laws allow for a more favourable handling of a lease vis-a-vis a purchase.

In most cases once you buy you must perform a depreciation calculation on the value of the equipment using a schedule the taxation legislation determines. then each year you need to do a more complex calculation on the depreciated amount for as long as tax law allows, then you cannot depreciate any more. If you buy you either put up all or a portion of the money up front then after a number of payments you will own the unit.

In a lease you make your monthly payments up fornt and save your capital for operations or other expenditures. Some taxation laws allows for a calculated percentage up to 100% of the lease as a deductable cost from income. There is no depreciation calculation. As well an open lease allows you to walk away at any time after payment of a penalty stipulated in the contract. At the end of the term you can lease a new piece or walk away with no charge.

Traditionally, a lease is used to maximize capital and simplifiy tax calculation. A purchase will minimize credit liability but may have a less favourable tax consequence.

Best bet is to find an accountant/ advisor and work with them to determine which maximizes your use of money and has the most favourable tax liability.

Hope this helps? Cheers.
 
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