Leasing or Financing Equipment?
Unfortunately, the days of companies that are flush with cash are over for the foreseeable future. In today's economy, the majority of companies, regardless of the size, are struggling just to stay ahead. For businesses that are looking for practical and beneficial ways to increase cash flow, take advantage of tax benefits and reduce risk, leasing or financing equipment instead of purchasing it outright is an excellent option. While leasing or financing equipment was once only available for large companies purchasing heavy machinery, even small companies can now take advantage of the option to lease or finance small business office equipment and machinery.
While purchasing equipment outright certainly decreases the monthly operation costs, it can often require a significant amount of capital outlay that reduces cash flow. In a slow economy, not having adequate cash flow available could cause the entire business to go under after a few particularly slow months. Reducing monthly costs quickly becomes irrelevant if there is not enough cash flow available to cover any of the monthly bills while waiting for invoices to be paid. By financing or leasing equipment, much needed capital funds remain available to help the company stay afloat during economic downturns.
Along with guarding the company's cash flow, leasing or financing equipment can also provide tax benefits when tax time rolls around as well as provide practical benefits to the company. Leasing or financing allows a business to employ the latest technology without breaking the bank. Using newer equipment, in turn, often increases both the volume and quality of production. Increased production then leads to an increase in profits. Much like the terms of a vehicle lease, an equipment lease may also allow a business to turn in equipment every few years and exchange it for newer equipment without losing money. When equipment is purchased outright, it may outgrow its usefulness long before it has paid for itself, leaving the business with an obsolete piece of equipment and no funds to purchase a replacement.
Leasing can also provide protection from purchasing defective equipment. New equipment warranties typically expire long before the equipment becomes obsolete leaving the purchaser responsible for repairs and maintenance. Unlike purchasing outright, a lease agreement may provide protection from defective machinery during the lease period.