Whats in this article?
When it comes to looking at new equipment, vehicles or new premises to expand, taking time to consider the impact it can have on your business is very important. Before deciding, it is crucial to take a few important factors into consideration:
- How long are you planning to use the asset? Is it a long term or short project?
- Is it a cost-effective purchase? Will it make you a return on investment?
- Does the asset become outdated easily?
- What is your current financial situation? Are there more important purchases that should be made first?
Buying an asset can have many benefits and it is usually cheaper in the long run. When it comes to buying an asset it will depend on your current circumstances such as:
- Is the asset an integral part of your overall business plans?
- Will it get used all the time?
- Do you want control over the asset?
- Is it easy to upgrade or scale up if demand increases?
- Can it easily be sold second hand?
- Is it convenient for maintenance purposes?
If you answered yes, then it sounds like it would make sense to invest in buying the asset however there is the financial impact that will need to be considered as well. If it would put the business at risk once the asset is bought, it would not be sensible to buy the asset.
When you lease an asset, you will be renting it out for a period of time. With a lease, you will not have ownership of the asset, the leasing company will while your business has exclusive use for the term of the lease. A typical lease will last from 12 months to 60 months however shorter leases are available however the premiums will be higher. Once you have entered a lease it can be difficult to leave and often the remaining months of the term will need to be paid.
It will make sense to lease if:
- The asset could become outdated fast and updating often
- Will it get used all the time?
- You don’t want to spend your cash reserve or risk financial trouble
- You are unsure of your financial position or the length of the asset is needed for so a shorter time frame would be ideal
- You’re unsure whether the asset is the right fit for the company
- You want to maintain your cash to invest into other areas of the business or maintain a good casflow.
Another option is a hybrid option to finance the asset with a bank loan where you get the benefits of having the asset and monthly repayments.This will allow you to preserve your cash and fund other activities at the same time however there will likely be a need to pay interest on the loan.
Speak to the Saint Financial team for expert advice and what your business is able to next.
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