Pros and Cons of Leasing Industrial Equipment versus Buying It
When it comes to operating a business, one of the biggest initial costs (outside of real estate) is equipment. Whether it’s just a few pieces of office equipment or a fleet of heavy machinery, fronting the cost of this equipment can quickly deplete your budget, if you had one to begin with. This couldn’t be truer for new businesses that are just starting out, as cash supplies are usually low because they were/are tied up in the initial startup costs.
Thankfully, there are alternatives—leasing, for example. Instead of paying outright for equipment, you can usually find it for lease at a fraction of the cost. However, does this really benefit your company in the end?
Leasing vs. Buying
Leasing equipment has its own advantages and disadvantages. One of the biggest benefits is in the initial investment of the equipment. On average you will pay a small portion of the cost for the equipment over time, as opposed to one large lump sum. However, this can end up costing more in the long run as costs start to accumulate. For example, you can buy a piece of equipment for $1,000 outright, or pay $100 dollars to lease it. If you use the equipment for more than ten months you will end up paying more than you would have for the initial investment.
Another advantage to leasing equipment is in the maintenance that is generally required at regular intervals. Most companies will provide service for the equipment, taking the hassle off of you. Of course that doesn’t mean the service doesn’t come at a price. Instead of getting a local repairman that can fix the equipment in a few hours, you might have to wait more than a day for a company approved repairman to come fix the issue.
Another advantage is that with leasing you generally have better access to higher quality equipment. However, the biggest drawback with leasing is in the lease itself. With leasing equipment, you are tied directly with that company for the term of the lease even if you are no longer using the equipment, or even have possession of the equipment for that matter. As a result you are also beholden to whatever company policies and rules the leasing company may have regarding the equipment.
One of the advantages of purchasing the equipment outright is in that you can write off the purchase as a business expense when tax time rolls around. Also, as you own the equipment you can sell it or trade it in at your own leisure.
Of course, you can always find local equipment auctions, which are usually quite fruitful as far as used equipment goes. Aside from leasing and buying, this would be the primary way that business owners acquire the necessary equipment for the jobsite.
In the end, whether you choose to lease or purchase the equipment,you are solely responsible for that decision. As mentioned previously, there are obvious benefits and drawbacks associated with both choices. In a nutshell though,the general pros and cons of leasing vs buying are:
- Cheaper upfront cost
- Better equipment
- Maintenance usually provided by leasing company
- Can be more expensive over time
- Tied to the leasing company’s rules, regulations, and policies
- Cannot write off the expense of equipment