If you’re thinking of acquiring more equipment in 2023, you should know that BDC has published a paper on the buy-or-lease issue. They know that cash flow and the expected life of the equipment are key in making your decision and the paper in question (available on the BDC website) delves into the topic in considerable detail in just a 5-minute read.
They point out that buying is usually cheaper over the life of the asset, but leasing generally requires less cash upfront, putting less strain on cash flow: “Buying typically gives you more flexibility for altering or selling machinery if needed, while leasing may offer more options for keeping up to date with the latest, cutting-edge gear.” A BDC account executive says that, “Ultimately, what it comes down to most is what you value as a business owner and what’s going to work best for your short- and long-term goals. Each entrepreneur has their own preferences, just like some people like to lease a new car every two years.”
You should read the paper for all the details, but in the meantime, here are the main points that BDC recommends you consider;
1 Start with the big picture
First, step back to think through your business goals, equipment needs and available resources. Get a clear picture of how the equipment will help you fulfill your business strategy and boost your performance. You should also consider: how much can you afford to spend; how tight or stable your working capital is; and what your internal capacity to maintain, repair and upgrade the equipment is.
2. Research your options
Gather details on all your options for buying and leasing the equipment. You should take note of costs such as: the purchase price and down payment (if buying); lease payments and end-of-lease purchase cost (if leasing); tax impacts; insurance; financing; training; transportation; alterations; implementation; downtime during transition; maintenance; repair; and upgrades.
3. Compare the numbers
If you have solid cash flow, buying equipment may be best because it typically comes with a lower overall cost of ownership. But if cash flow is tight or uncertain, leasing could make more sense. It doesn’t usually require a big upfront outlay and lets you spread out the cost with monthly payments over several years, with the option of buying for a reduced amount at the end of the lease. In most cases, it’s cheaper to buy up front than leasing to own, but if you’re in an unstable or fast-growing business, leasing may put less strain on cash.
4. Mix it up
You don’t have to go all in for either option. It may make sense for your business to use a mix of leasing and buying a medley of new and used equipment.
Acquiring equipment is a big decision. Do your research. The BDC article is a good place to start.