Leasing vs. Buying: What You Need to Know

It’s just a good sound business practice to keep a healthy cushion of cash on hand at all times. And with credit markets tight, you need to keep what credit reserves you have for real emergencies.

 

At the same time you’re attending to cash flow issues, you’ve also got to keep on top of your computers and IT infrastructure in order to keep your business running smoothly. So how do you meet technology demands while keeping cash on hand? Leasing presents one good financing option for many small businesses.

 

When you buy equipment, it’s yours forever. But when it comes to computers, the pace of innovation is so rapid that owning equipment “forever” doesn’t always make sense. Leasing lets you acquire equipment at a fixed, affordable monthly cost, leaving bank credit and cash reserves free for other expenses. You can upgrade or refresh technology whenever you need to, instead of trying to extract value from old or out-of-date equipment. And some providers will finance not only the lease but also installation and configuration, so that you can roll up all the costs of a technology refresh into a single payment.

A potential down side of leasing is that, depending on the length of the lease, you may ultimately pay more for an item than you would if you paid for it outright. This is particularly true of longer-term leases. You should also consider the residual value of the equipment at the end of the lease. Equipment value declines over time, so a shorter-term lease results in fewer payments with a higher-value asset at the end, as well as lower risk of obsolescence.

 

Remember, there may be tax implications to consider for either option. You may want to consult with your accountant to determine the best fit for you.