Whether it’s a piece of machinery or a vehilce, buying is an expensive and important decision that can affect business tax, output, and cash-flow. It’s a decision that requires a robust strategy that carefully weighs up the pros and cons of leasing and buying.
Buying: Pro’s
You have a tangible asset
This asset will appear on your balance sheet and will positively affect your business tax. Owning increases the perceived capital and value of your business, and you can claim capital allowance.
You own it for the rest of your life
That is, until the day you decide to sell it.
Buying: Con’s
It’s an expensive straight-up cost
An upfront cost, such as a property, is a massive decision for your business, and you need to make sure it’s the right purchase for your business needs.
You may need to source extra capital
To fund the purchase of an asset, you may need to source an external investment. This can prove to be a lengthy and resource-intensive process.
Leasing: Pro’s
Cheaper point of entry
If cash-flow is limited, this is the best option.
You don’t need to pay a lump sum of money
You can spread the cost across multiple payments, giving you more time to find the cash needed – and use the remainder for other business ventures.
Leasing: Con’s
You don’t own the asset
Even when the asset is paid off, you don’t own it. Owning an asset has advantages, such as selling the investment and reaping the financial reward from doing so.
You end up paying more
There is always added cost and interest on an agreement, and you will end up paying more.
Could take away the asset
Miss payments and the asset could be taken away by the actual owner. This could heavily impact your business’ ability to operate, and will have a profound impact on profit.
Chattel Mortgage and Hire Purchase also must be considered with tax depreciation and GST claims. Whether you buy or lease can affect your business tax and other aspects of the company. Discuss your specific circumstances with Accountants 2 Business, and they will advise the best direction forward.
The information in this article is general in nature and might not be right for your circumstances. Please arrange a meeting with one of our Accountants to discuss your particular needs. Accountants 2 Business Ph (07) 3823 2344
