Operating a business is hard. There, we said it. You have to manage people, daily operations, products, and cash flow. But then there’s everything from renting your office or storefront to stocking supplies and equipment! It all costs money, and a million little things impact how you spend it.
But when push comes to shove, you need to be productive and make people happy. The equipment your people use—whether it’s laptops for the office or forklifts for the warehouse—has major impacts on your business. So does it make more sense to buy or lease your equipment? Your friendly neighborhood bookkeeping services firm weighs in.
Choosing equipment for your small business can be equal parts exciting and stressful.
Apart from selecting the right type of equipment, choosing between leasing and buying equipment can affect your accounting needs—from up-front costs and maintenance costs to tax implications.
Leasing is more popular for new small businesses since they often can’t make huge capital investments out of the gate. Or even if they have the funds available in the bank, they know it’s better to hold off on large expenditures until they break even.
Think about your company’s future technology needs too. Some small businesses don’t require new technology very often, but yours may need regular updates to stay relevant. Leasing allows businesses to upgrade equipment at the end of a lease period.
Buying works for established businesses or ones that really understand their needs. If they’re sitting clearly in the black and have money available in the bank, they know buying equipment is feasible—especially if it won’t have to be replaced for quite some time.
Choosing between buying and leasing equipment isn’t as simple as flipping a coin. Just like when making everyday decisions such as hiring, your business needs to weigh how the decision would impact you operationally and financially.
To determine your need for updated technology and whether or not it makes sense to lease or buy, follow these steps:
Not all small businesses qualify for equipment financing. While this may be due to a lack of creditworthiness, lenders also look at how long you’ve been in business and your available collateral.
To understand your financing options, follow these steps:
“I’ll just write it off on my taxes,” you say. But can you really? Buying and leasing each comes with different tax-related caveats. Your final decision could rely on what you want to achieve.
From a tax perspective, buying equipment has some give and take, with specific deduction allowances. For instance, if you buy via financing, you can only deduct the interest—not the total purchase price—as an expense. But with some business assets, such as automobiles, you can deduct depreciation of purchases, requiring that you understand the per item allowance.
Leasing is generally appealing when tax time rolls around. That’s because deducting the cost of leased equipment can simplify your business’s taxes compared to deducting depreciation. Plus you get a larger deduction than you would by deducting interest on a credit purchase.
Ultimately, when you’re weighing buying and leasing options for equipment, you need to take a number of factors into account. A good starting point? Talk about it with your trusted bookkeeping services team.
Beyond that in-depth discussion (and preferably beforehand), sit down and really think about your company’s position and equipment needs over time.
Ask yourself:
There’s no one-size-fits-all solution for buying and leasing. Small-business owners may have an idea of what they would prefer but should get advice from accounting and bookkeeping services who can look at the bigger picture.
Need advisors in your corner? Ignite Spot’s team of pros can help you make sure your equipment meets the needs of your business for years to come. Our goal is to make you profitable. Contact our team today and schedule your complimentary CFO session to learn how we can help meet your bookkeeping and accounting needs.
Eddy Hood