Every business requires equipment in order to operate. The type of equipment needed is particular to each business; one company may use computers to create software programs, and another company may use tractors to maintain a farm. When it is time to acquire equipment for business use, owners will have to decide whether to lease or purchase equipment. They should consider the following questions before making a decision:
How much cash does the business have to spend?
When businesses lease equipment, they spend less on upfront costs, freeing up cash flow. Lease payments allow businesses to make payments over time. Often, businesses will not have to make down payments in order to obtain equipment. Small business owners and start-ups can benefit from leasing equipment.
Businesses with more money have the option of purchasing equipment. Once a sales transaction is complete, businesses have full ownership of the equipment. They can also request loans to purchase equipment, but they must be prepared to make large down payments.
Over time, leasing equipment may cost more than ownership. Businesses must calculate the entire cost of lease payments, loan payments, and other expenditures (such as maintenance costs) related to equipment before deciding whether to lease or purchase.
How long does the business need the equipment?
Some equipment, such as computers, printers and copiers, are essential to daily business operations. Businesses may require other equipment to complete short-term projects. If equipment becomes outdated, leasing gives businesses the opportunity to acquire new equipment once the lease term ends. Certain equipment lasts for long periods or does not require continuous updates. Ownership allows businesses to gain equity in equipment, transforming them into valuable assets.
Research and planning are crucial when determining if equipment will become a short-term expense or a long-term investment. Many companies that lease equipment or offer equipment for sale have customer service representatives that provide product consultations so that business owners can make informed decisions.
What are the tax benefits?
When businesses lease equipment, they can deduct lease payments as an expense. These deductions can offset some of the costs associated with monthly payments over an extended period of time. Outright ownership also has its benefits, and businesses can also deduct a percentage of the purchase as an expense for the year they acquired the equipment. Additionally, owners can deduct the depreciation, or loss of value, of equipment.
Equipment acquisition can help businesses in many ways. New equipment can enable businesses to generate new sales or develop new products. Before deciding on expenditures that will influence how a business operates, owners need to answer questions that will enable them to make sound decisions about leasing or purchasing equipment.
The Law Offices of Terry L. Gilbeau provides personalized counsel to clients in a variety of business and personal matters, including creditors’ rights, debt collection, products liability and international transaction issues. His office is located in Rocklin, CA, just outside of Sacramento, CA, near Roseville, Lincoln, Auburn, in Placer County and can be reached at (916-626-5539) or email Terry at firstname.lastname@example.org. Click here for the firm website http://www.gilbeaulaw.com/