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Buy assets and equipment

To be successful, your company will need assets and specialized equipment. Determine which assets you will need and how you will pay for them.

Contents

  • Do you know which assets and equipment are necessary?
  • Decide if you want to lease or buy

    • Do you know which assets and equipment are necessary?

    Business assets can be divided into three types: tangible, intangible and intellectual property. You can choose whether to buy or lease assets for your business depending on the type of asset. The first step is to determine which assets will be beneficial to your company.

    Tangible assets, such as buildings, cars and equipment, are typically used for commercial purposes and will lose their value over time. Materials, such as printing paper, are not considered assets. Tangible assets can be recognized as property or equipment on your balance sheet.

    Intangible assets, such as your business reputation and brand, are assets that cannot be touched. You cannot list those assets on your balance sheet, and they are also difficult or impossible to sell for cash. They can, however, contribute to the overall value of your company.

    Intangible assets, such as trademarks, patents, logos, websites, domain names and software, are examples of intellectual property. Copyrights and trademarks are the most common forms of intellectual property protection.

    Decide if you want to lease or buy

    Once you have decided what you need, you can decide how to acquire the assets you need for your business.

    Lease

    If you need a piece of equipment quickly or if it is too expensive, leasing it may be a good option. When you rent a business location, you can also lease a commercial space. In some cases, leasing may be less expensive than purchasing with high-interest financing.

    Benefits of leasing

    • You will need less capital.
    • Leasing for a short period will allow you to test out your equipment.
    • Maintenance is sometimes included at no extra cost.

    Disadvantages of leasing

    • The lifetime cost is usually higher than if you buy it.
    • Replacing a piece of equipment before the lease term expires can be very expensive.

    Every lease is different, so it is important to pay attention to the details of your offer to ensure you are getting something that is right for you.

    Confirm the details of the lease

    Operating leases and capital leases are the two types of leases. In terms of accounting, the type of lease you use can have a significant impact on your company’s tax liability.

    An operating lease is similar to the traditional lease. Because you cannot list the asset on your balance sheet, it does not belong to you. The payment will be deducted from the company’s operating expenses.
    Capital leases work in the same way that a loan does. The asset is yours for accounting purposes. It will be listed on your balance sheet, and you will be able to claim depreciation and interest costs.

    There are a few more things to think about. When you lease an asset, you have the option to buy it at the end of the lease. The length of the lease may differ, and short-term leasing may be more costly per month. You may be fined if you want to end your lease early.

    A lawyer can always revise a lease before you sign it, especially if the terms or conditions are not complete.

    Buy

    Buying equipment is an option if you have sufficient funds and are confident that you will use it for a long time.

    Benefits of buying

    • You can claim depreciation on your taxes.
    • The long-term expenses for buying are usually less than for leasing.
    • You can list the asset on your balance sheet.

    Disadvantages when buying

    • You will need money.
    • Less opportunity to test out the asset.
    • You will have to pay for maintenance and replacement.

    Buy with cash or credit

    You will own your assets immediately if you buy them with cash, but you will have less cash available to cover your operating expenses. If you can afford to pay with cash, make sure you have done your accounting homework.

    Loans can provide some of the same benefits as leases by distributing the total costs over a longer period. When compared to buying with cash, you will pay more in respect of fees and interest.

    You can either use your bank’s credit lines or look for other ways to get more money for your company.

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