5 Reasons Why Leasing is Better than Buying
One of the first questions you should ask whenever you are considering investing in an asset for your business should be: “Do I really need to buy this?”
Cost is a major factor in sourcing assets and often businesses will feel that they only have two options: either spend a fortune to buy it or go without.
Here are a few reasons why leasing may be the better option your business didn't realise it needs:
Leasing Isn’t More Expensive
Many companies' initial thoughts are that as leasing is a long term commitment to a provider, it will inevitably end up more expensive with the inclusions of interest, end of lease trickery and other hidden costs to drain more money from an asset agreement. These are gross generalisations, fuelled by rumour and exaggerated bad experiences, when leasing has not been arranged in a cohesive and thought out manner and lease agreements not reviewed prior to signature.
Although leases do have the addition of interest to pay, they are not necessarily more expensive than paying a big lump sum up front. There are tax reasons, cash flow reasons and other costs of ownership that could in fact mean you benefit more financially through leasing than through buying an asset.
You can get a great deal more for your money through leasing than by simply buying an asset, including the potential to upgrade your tech, schedule service and maintenance if breakages occur and even the option to buy at a significantly reduced cost or sell the asset on for a profit.
Although it may seem the simpler option, buying is not automatically cheaper and is definitely less flexible than leasing. When you lease an asset, there are plenty of additional options to make sure you get your money's worth.
Flexibility with Easy Upgrades
Technology is evolving more and more rapidly and although this may be great for your business, it also comes at a cost. Nowadays, many of the gadgets our businesses have become reliant on become obsolete as soon as a fancier, newer version hits the shelves, seemingly weeks after the previous apparently “must-have" tech. More often than not, we are placed in the potentially expensive position of needing to consistently update our operations with brand new equipment every few months in order to stay at the top of our game. Why invest money in something that may be more suited to the junkyard than the office in a few months?
Unlike when you buy an asset, most leases provide you the opportunity to upgrade as part of your agreement. Not only does this asset refresh offer considerable cost relief to staying up-to-date, but you also don't have to worry about getting rid of the old equipment as it is returned to the lessor. If there is still some economic residual within these returned assets, there may even be the opportunity to negotiate a trade it for a discount on the newer models. Laptops, phones and even things like trucks and planes can be kept up to date through your lease without all the stress, responsibility and waste of updating bought equipment.
We upgrade our mobile phone contracts all the time, so why not apply the same logic to our assets?
Fewer Responsibilities of Ownership
Although buying guarantees your company ownership of the assets, this is not necessarily a benefit. By having full ownership, you are responsible for everything that happens to the asset, including the ethical and legal disposal of the equipment when it has outdone its usefulness.
This does give your company the opportunity to re-sell the asset, but this can come with many complications: How long will it take to sell the equipment on? Will you lose money? Does the asset still have any value?
Then you have to question what to do if you can’t sell it on. Does it need to be disposed of in a specific way? What parts should be recycled? How much will it cost to haul it?
One of the best parts of a lease agreement is that when the lease is over, the lessor takes back the equipment. On top of that, there are numerous arrangements that can be made to determine the future of your relationship with the asset:
- The lessee can continue the lease through a revised secondary term and keep using the equipment.
- The lessee could buy the asset at a discounted price, receiving full ownership.
- The lessee can act as a sales agent for the lessor and take the risk to sell on the asset.
- The lessee can cut all ties with the equipment, leaving it to the lessor to dispose of in an economic and environmentally friendly manner.
Leases give you the luxury of time to decide whether to take the risk of claiming full ownership, while still getting all the benefits of its use, potentially saving you a great amount of hassle with trying to free up some space and dealing with the assets.
Leasing Builds Business Relationships
To re-word a classic saying: A lease is for life, not just for Christmas. Now this isn't to say that your lease agreement should continue for the rest of your life, but it does mean that even when your agreement ends, there is still a relationship between you and your supplier.
When you start a lease, not only do you have an extended contact with a supplier, but you also gain access to a lot of other referral opportunities. It is important to be on people’s lips as word of mouth is consistently one of the most effective sources of networking. Therefore, once you build a relationship with a supplier, you may be able to connect to more of their clients or help expand other parts of your business with lucrative deals and collaborations.
As long as you look after your assets, pay your dues on time and end contracts on good terms, you should be able to develop a strong relationship of trust, leading to further deals and help from the lessor throughout your asset financing and potential upgrades. Suppliers are much more likely to help a friendly, good customer than a company who only buys once and is never heard of again.
There is Plenty of Support
Leasing often gets an unfair association with being confusing and time-consuming, but it is in fact a goldmine of potential cost, hassle and time savings. The idea of contracts and small-print may strike fear into even the most hardened of finance experts, and with the imminent implementation of the FASB new lease accounting standard, it is understandable why lessees may be tentative about pursuing this option, missing out on the numerous benefits.
However, this should not be a reason to swear off of leases for life. As long as you are organised and prepared, leasing could be the answer your business is looking for. Innervision provide a range of specialist services and expertise to help makes sure you get the absolute best out of your lease agreements. Be sure to subscribe to our Blog updates and download our e-books and white papers for information on how to make leasing as easy and beneficial to your business as possible.
So there we have it, just five of the numerous reasons why choosing to lease the assets your business needs could be far more beneficial than buying the equipment. Although every company's requirements differ and leasing isn't for everyone, it should definitely be one of the options that you give some serious consideration.
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