No matter what type of industry you’re in, you depend on equipment to get the job done.
That might be manual equipment, like presses or heavy machinery, or digital equipment, like tablets and smartphones, but all our work depends on physical objects, at least to some extent. And of course, eventually, physical objects break.
Sooner or later, your business will have to repair, replace, or upgrade your equipment, and when you do, you’ll have two main choices; buying or leasing your new products. You shouldn’t rule out either option right away, take your time to consider each, as there are many dimensions to this problem.
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General Advantages of Buying
First, consider the advantages buying has over leasing:
- New and used choices. Just because you’re buying doesn’t mean you have to buy new. You’ll have the ability to choose between new and used options, possibly saving yourself a bit of money without sacrificing any quality in your final products.
- Avoidance of unwanted terms and conditions. Most lease agreements come with terms and conditions you’ll have to strictly follow if you want to avoid penalties or legal action. Buying gives you more freedom to do what you want with your own property.
- Ability to resell. Though depreciation usually mandates that you’ll sell your equipment at a loss, buying does give you the option to sell your equipment back at the end of its lifecycle, thereby increasing your potential return.
General Advantages of Leasing
Now, take a look at how leasing can trump buying:
- End of lease options. Not all lease agreements are pure rentals. In fact, some of them have negotiable terms and conditions, and some may even allow you to purchase the equipment at a reduced rate after a finite period of being in the lease. It’s a way to get the best of both worlds.
- Less upfront cost. When you lease equipment, there’s almost no upfront cost (at least compared to buying). For companies with limited capital, this is ideal.
- External accountability. When something goes wrong with a piece of leased equipment, someone else will handle it. Your leasers will pay for and arrange for repairs, and sometimes replacements, when necessary, saving you time and money in the long run.
Specific Considerations for Businesses
As you can see, there are clear advantages and disadvantages on both sides of the equation. To make the right decision for your company, you’ll need to bear these special considerations in mind:
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1. Different industries demand different standards
Your target market, your competition, and the way you work will all influence the lifecycle of your equipment. Are you the type of industry that rarely changes, and uses the same equipment for decades before needing to replace it?
Then buying makes far more sense. But let’s say you’re in a highly competitive, fast-paced industry, and you need to make a good impression on your customers by always having the best, latest-and-greatest equipment. In this case, you’ll need to keep your materials fresh and in perfect condition, so a lease might be better for you.
2. Different types of equipment have different rates of decay
It’s also worth noting that different types of equipment have different natural rates of decay. For example, technology usually features high rates of obsolescence, demanding that it be replaced more frequently than something like construction equipment or heavy machinery. Accordingly, for tech products, leasing is generally more advantageous.
3. Buying power matters
Don’t stretch yourself too thin here, your buying power matters. Just because a buying decision seems advantageous on paper, that already assumes you have the cash and flexibility to buy those products outright. If you’re a startup or a small business, your cash flow is crucial to your success, and it’s probably volatile enough as it is. If you can spare a little cash by opting for a leasing arrangement instead of a buying arrangement, do so.
4. Long-term ROI should be the goal
Keep in mind what you’re really after here, the return on your investment (ROI). How much money can you make back by reselling your product after a few years of owning it? How much money will you save in repairs by opting for a lease agreement that takes care of such things? You’ll have to do your research here, but a few extra hours of effort can really illuminate the financial benefits of each potential decision.
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5. Don’t forget about productivity
Finally, don’t forget productivity as a part of the equation. On some level, your equipment is necessary for employees to do their jobs, but the quality and state of that equipment can influence them on subtle levels.
For example, an old piece of construction equipment might have quirks that make simple jobs take a few extra minutes or an older computer might double the length of time it takes to use certain functions of an app. Upgrading your equipment regularly can help you reduce this productivity loss.
There’s no right or wrong answer when it comes to buying or leasing your new equipment; it almost exclusively depends on your unique situation. Your industry, your workers, the type of equipment you need to replace, and your current cash availability should all play into your final decision.
Take your time, do your research, and if the numbers don’t spell out a clear decision for you, learn to trust your gut instincts.