Buy or Lease Business Assets?

Understanding the Options: Buy or Lease Business Assets

Buying Business Equipment:

Pros:

• Asset Ownership: Purchasing equipment outright means it’s yours, appearing as an asset on your balance sheet. This not only enhances your company’s capital value but also allows for capital allowance tax claims.
• Short-term Flexibility: Leasing provides an option for short-term use that purchasing doesn’t offer, allowing for flexibility without long-term commitment.
• Long-term Use: Once purchased, you control the asset for its entire usable life.

Cons:

• High Initial Cost: The upfront payment can be substantial, potentially diverting funds from other business areas.
• Additional Funding: If cash isn’t readily available, you might need a loan, which could increase your liabilities and affect your balance sheet negatively.

Leasing Business Equipment:

Pros:

• Lower Initial Costs: Leasing reduces upfront expenses, making it attractive for startups and small businesses. It allows for the use of the asset without full payment, crucial for maintaining operational flow.
• Cash Flow Management: Payments are spread over time, aiding cash flow management and freeing up funds for other investments.

Cons:

• No Ownership: Depending on the lease type, you may never own the asset. That said, some operating leases do end with the option to purchase.
• Potential Higher Long-term Cost: Leasing can ultimately cost more than purchasing outright due to fees and interest.
• Risk of Loss: Failing to meet lease payments can lead to the lessor reclaiming the asset, which could disrupt your business operations.

Making the Right Choice for Your Business

Deciding whether to buy or lease business assets involves more than comparing costs; it’s about aligning the decision with your company’s financial health and strategic goals.

Consultation with a chartered accountant can provide insights into how each option would impact your financial landscape, considering factors like cash flow, tax implications, and business expansion plans.

If you’re facing this decision and need expert advice tailored to New Zealand’s business environment, our team is ready to help. We’ll review your financial position and help you choose the path that best supports your business’s long-term success.

Contact us to explore your options and ensure that your asset acquisition strategy is as beneficial as possible. Whether buying or leasing, make an informed decision that propels your business forward.