Should you buy or lease your business assets?

Haven Accounting | 2 MIN READ April 13, 2022

Should you buy or lease your assets? The decision depends upon the nature of your business. Given that every business differs, there’s no simple answer. It’s worth considering the pros and cons of each before making a decision.

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Buying pros

When you buy an item, you own the item outright and it will appear on your balance sheet as one of your business assets. By owning these assets outright you increase the perceived capital and value of your business. When you’re not using it you can decide to rent it out or sell it to free up the capital. If you own the asset you can also claim depreciation.

Buying cons

Paying for the item upfront can be an expensive outlay for the business. This may tie up working capital in an asset. Not only is it hard to upgrade without significant costs, but it may also mean you end up stuck with outdated equipment unable to move it on. If you need to take out a loan to pay upfront, this will add to your liabilities and reduce your worth on the balance sheet.

Leasing pros

Leasing means little or no upfront outlay, which means less impact on cash flow. This allows you to make use of the asset without worrying about maintenance. In cases where technology is rapidly changing, you may want to lease as you can include upgrading the asset to a newer model in your agreement. You can spread the cost over a longer period making it easier to find the liquid cash to meet your lease payments. This helps you to use the money you’ve saved to invest in other areas of the business.

Leasing cons

You may pay more in the long run, most leasing agreements will incur additional costs and interest on your agreement. Depending on what lease agreement you enter into, you may not own the asset at the end of your lease. If you choose an operating lease you won’t own the asset at the end, this is usually a short term lease. You can opt for a capital lease which means you’ll own the asset at the end, but keep in mind that you’ll probably be paying more than the market price in the long term. You may lose the use of the asset if you can’t keep up with your payments which could have a significant impact on your ability to operate.

If you want help figuring out which path is best for your business, don’t hesitate to contact the Haven team on 0800 700 699, we would love to help you out.

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