Equipment Leasing - A Wise Business Decision
What You Should Know
Equipment Leasing Can Be Less Costly Than Buying
No matter what small business you might own, equipment leasing is almost always an option, rather than investing up front in expensive items that might depreciate quickly. A doctor starting a new practice might consider equipment leasing for items such as an x-ray machine; restaurateurs might lease anything from kitchen equipment to dining room fixtures; even a small landscape company might find equipment leasing to be more convenient and less costly when looking for machinery such as mowers.
But before jumping into equipment leasing, a smart business person should do due diligence in selecting the right company to lease from at a price that is beneficial to his or her bottom line.
Tips for Equipment Leasing
Here are some general rules of thumb for equipment leasing:
1. Shop around. Equipment leasing agreements can vary greatly from one company to another, so be sure to calculate your overhead carefully. Keep both current and future needs in mind when determining what agreement would be more profitable. At the same time, don't just consider the price. Essential equipment should be in good condition and reliable enough to do its intended job for a long period of time.
2. Search for an equipment leasing company that is well established. You might refer to online reviews about the company written by other customers. Consult with colleagues or others in your field to get recommendations. Be sure you are dealing with a company that is offering you its most reliable machines and tools and which has a sound reputation.
3. Take possible tax advantages for your business into consideration. Equipment depreciates over time and monthly costs for equipment leasing can be deducted from taxes, which could result in considerable tax savings at the end of the year. However, this should not be your sole reason for equipment leasing. In cases of little or no depreciation, you could end up paying more for taxes than expected.
4. Make sure you know what's in the contract for equipment leasing. This sounds simple enough, but it can be a common mistake made by new business owners. The language in a lease contract can be legalese that is best understood by an attorney. Contracts are naturally written to benefit the equipment leasing company. Never sign a contract you don't understand; hire an attorney to look it over and explain it to you, if necessary. The cost is offset by the financial security it could provide in the long run.
5. Know who is responsible for maintenance and be sure it is spelled out in the lease. Some equipment leasing contracts don’t provide for maintenance and repair. That means you could be stuck with the bill if the equipment breaks down. Make sure that any maintenance and repair agreement is favorable to both parties and if you can't afford such expenses, avoid a contract that would make you solely responsible. In short, always read the fine print.
Equipment leasing can be a good solution to maintaining cash flow in the early phase of opening a small business. Just be sure the agreement you sign is beneficial to your new business and not detrimental.
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