How can we help strengthen your business?

How can we help strengthen your business?

Should you buy or lease equipment? Understand your 2 options and make the smart choice for your business

As a business owner, one of the most crucial choices you’ll face is whether to buy or lease equipment for your company. Regardless of your industry—be it manufacturing, construction, or service—you need the right tools and equipment to keep your operations running smoothly.

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Before you Buy or Lease Equipment, Understand Leases

A lease is a legal agreement that permits one party to transfer the use of an asset to another party for a specified duration in exchange for periodic payments. A lease always involves two parties: the lessor, who grants the right to use the asset, and the lessee, who acquires the right to use the asset in exchange for payment.

Types of Leases

  • Operating Lease: An agreement allowing the use of an asset without transferring its ownership to the lessee.
  • Finance Lease: A lease that transfers all the risks and rewards of asset ownership to the lessee at the end of the lease period.

Key Factors to Consider When Deciding to Buy or Lease Equipment (Plant)

  • Needs Assessment: Evaluate the company’s requirements and ensure that the plant or equipment aligns with your business needs
  • Maintenance Cost: Determine whether your company can afford the ongoing maintenance and running costs of the plant or equipment.
  • Depreciation: Consider the lifespan and potential depreciation of the plant or equipment.
  • Budget Consideration: Assess how much your company is willing to spend on the purchase, conduct thorough research, and explore alternatives such as leasing.

Buy or Lease Equipment? Weigh the Pros and Cons

Buy or Lease Equipment? Benefits of Leasing
  • Lease payments are tax-deductible, reducing the tax return.
  • Lease agreements offer more flexibility compared to loan terms.
  • Lower upfront costs.
Buy or Lease Equipment? Drawbacks of Leasing
  • No ownership of the plant or equipment during the lease period, although the lessee may have the option to buy at the end of the contract.
  • Can be more costly than buying in the long run.
  • Increase in operating costs due to periodic payments.
Buy or Lease Equipment? Benefits of Buying
  • Control and ownership of the plant or equipment.
  • Opportunity to benefit from asset appreciation.
Buy or Lease Equipment? Drawbacks of Buying
  • Responsibility for all maintenance and repair costs.
  • Must account for asset depreciation.
  • Capital gains tax may apply if the plant or equipment is sold at a higher price than its base cost.
Buy or Lease Equipment? Make the Right Decision for Your Business
There are advantages and disadvantages to both buying and leasing equipment. Buying equipment outright provides complete control over the asset and can often be a more cost-effective option in the long run. However, leasing equipment offers more flexibility and lower upfront costs. Consider your business’s specific needs and financial situation before making a decision. Working with a professional advisory firm to think through your strategic business decisions is a smart move, and we can help! You may email us at info@kettleconsulting.co.za or call 011 025 1446 (Johannesburg) and 021 003 8000 (Cape Town).

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