Should a Company Lease or Buy Equipment?

What smart business owners understand about leasing equipment vs. buying equipment

A smart business owner would never hire a dynamic, new sales associate and pay him or her three years’ salary in advance. No. Instead, a smart business owner ties compensation to the revenue the sales associate generates for the company. Even though many business owners consider their employees their company’s most important “asset,” they pay a salary for their productivity as it generates sales, and not a minute before.

Regardless of the industry you’re in, this same mindset should apply to how you add business equipment. Just like you’d never waste resources hiring a non-essential employee, it’s a waste of money to invest in equipment unless you can answer, “Yes,” to two questions:

1. Is it essential to providing your service or product?
2. Will it generate revenue?

Once you’ve determined that a piece of equipment will help grow your business, the next decision is how to pay for it. The two most obvious choices are to either buy it or lease it. In the majority of cases, smart business owners lease equipment. That way the payments are made over time and are funded by the revenue the equipment generates.

The formula for determining whether leasing a piece of equipment is a smart move is simple:

The revenue generated by the equipment is > or = to the lease payment.

If it is, then leasing makes sense for a number of reasons.

Contact us for more information on how you can make leasing work for your business.