Should you buy or lease business assets?

Deciding whether to buy or lease your new equipment can be a tough choice. Let’s break it down to help you make the best decision for your business. 
Why This Decision Matters 
Certain equipment, machinery, and hardware are essential for your business operations. Whether it’s a delivery van for your food service or a high-end printer for your print shop, these assets are crucial. But should you buy them outright or lease them and pay in monthly instalments? 

Buying vs. Leasing: The Big Question 
Buying new business equipment can be a significant investment. Depending on your financial situation, it’s important to weigh the pros and cons of buying versus leasing. 

Buying: pros and cons

Pros: 

• Ownership: When you buy an item, you own it outright. It appears on your balance sheet as a business asset, increasing your business’s perceived value. Plus, you can claim the cost against your capital allowance for tax purposes. 

• Long-Term Use: Once you own the item, you have full use of it for its entire lifespan. If your financial situation changes, you can sell the asset to free up capital. 

Cons: 

• High Upfront Cost: Buying requires a large upfront payment, which can strain your cash flow and take funds away from other areas of your business. 

• Potential Need for Loans: If you don’t have enough liquid cash, you might need to take out a loan, adding to your liabilities and reducing your worth on the balance sheet. ​

Leasing: pros and cons

Pros: 

• Lower Initial Cost: Leasing allows you to use the asset without the high upfront cost. This can be especially attractive for start-ups and smaller businesses with limited cash. 
  

• Spread Out Payments: Leasing spreads the cost over time, making it easier to manage cash flow and invest in other areas of your business. 
  

Cons: 

• No Ownership: Depending on the type of lease, you might not own the asset at the end of the lease term. This means you can’t sell it if needed. 
  

• Higher Long-Term Cost: Leasing agreements often include additional costs and interest, which can make the total cost higher than buying outright. ​
  

Making the Right Choice 
One of the biggest considerations is the cost of finance. There is likely not point borrowing money at say 15% interest if you have the cash in the bank and do not need it to fund the business. For us to support you we will ask you things like the cost of the quote you have for leasing, or payment amount for a commercial loan and the associated interest rate. You need to also consider your current financing arrangements, do you pay credit card interest, do you own money to the tax office or for payroll tax. Do you have personal debts that you could be using your cash to help you pay off.  

It is important to consider your whole financial position, cash flow, and the asset cost to decide whether buying or leasing is the best option for your business. Each choice has its benefits and drawbacks, so it’s important to choose the one that aligns with your business goals and financial situation. 

Need help deciding? We can review your financial position and help you make the best choice for your business. Call us on (08) 9367 4199 to make an appointment.