Imagine who runs a construction firm. After 6 months, he/she lands an exciting deal. The only problem is that the deal requires to get his/her hands on a specialized piece of equipment that he usually doesn’t use -- a system that costs a pretty. However this is a great opportunity to grow his/her business.
Should he/she lease or buy the equipment?
You can easily decide for him/her based on answering the 5 questions:
1. How often will you use the equipment?
The business owner knew that the project was a once-off and that he wouldn’t be using the system that often. It wasn’t worth buying and storing this costly piece of equipment if it is used once or twice per year.
2. How much money do you have?
Even if you plan to use the equipment often and decide that purchasing it is better, you may find that you don’t have enough cash available. In these instances, leasing may be the wiser option, especially if you urgently need that equipment.
Your decision to lease or buy shouldn’t only be driven by your current financial situation, but also your ability to make future payments.
e.g. you have $200,000 in your bank account, and an excavator costs $160,000. You decide to purchase, only to discover that at the end of the month you don’t have enough cash to pay rent and cover your other bills.
3. Does it have to be the newest?
When you urgently need that equipment but you discover that you don't have enough money to buy it, leasing may seem like your only option. If you don’t have enough money for something new, you may want to purchase it second-hand.
A word of caution: Buying used equipment comes with risks. You often don’t have the same warranties or protection that you have when purchasing it new.
4. How quickly does Technology change?
You may want to opt for a lease to ensure that you always have the latest the technology available. If having the latest technology is not necessary, buy the equipment instead.
Many business owners prefer to buy equipment, so they don’t have to worry about damaging what they don’t own.
The downside of this is that you have to carry insurance because if the equipment does get damaged, you have to replace it.
Which would you choose for the business owner based on the 5 questions?