One of the first questions you should ask whenever you are considering investing in assets for your business should be: “Do I really need to buy this?”
Cost is often a major factor when sourcing assets and often businesses will feel that they only have two options: either spend a fortune upfront to buy it or sweat their current assets for longer.
However, there are other alternatives that may be far more beneficial to your company’s cashflow, one of which is leasing. As well as potentially saving you money, there are a great deal more benefits with leasing that you just can’t get when you buy your assets.
Here are four common reasons why leasing may be a better option for your business.
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 conditions and other hidden costs that add up from the lease 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 have not been reviewed prior to being signed.
Although leases do have the addition of interest to pay, they are not necessarily more expensive than paying a big cost up front. There are 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, including the potential to upgrade your tech, scheduled service and maintenance if breakages occur and even the option to buy at a significantly reduced cost.
Although it may seem the simpler option, buying is not automatically cheaper and is definitely less flexible than leasing.
Flexibility with easy upgrades
Technology is evolving 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 more functional, 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 years in order to stay at the top of our game.
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 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 financial residual value within these returned assets, there may even be the opportunity to negotiate a trade in 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.
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 within the business.
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? 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. Does it need to be disposed of in a specific way? What parts should be recycled? How much will it cost to transport it?
One of the best benefits of leasing 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 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.
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 contract small-print and dealing with the IFRS 16 accounting standard may strike fear into even the most hardened of finance experts, it is understandable why companies may be tentative about pursuing leasing as an option, missing out on the numerous benefits.
However, this should not be a reason to swear off leasing for life. As long as you are organised and prepared, leasing could be the answer your business is looking for. Quadrent provide a range of specialist leasing services and IFRS 16 compliance software, both of which are supported by lease accounting experts and chartered accountants, to help make sure you get the absolute best out of your lease agreements.
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 to.
Still don’t know which one is for you and your business.
Being sure about the decisions you’re making for your business can be tricky. You’ll want to make sure you’ve considered all the angles and know the details of each option.
At Quadrent, we have a long history of making the complex world of leasing simpler. We work with organisations helping them access assets without sacrificing cash flow and addressing their ESG risk in the process. With a team that has in-depth leasing knowledge and specialised accounting backgrounds, we’ll help you get the most value out of your assets while addressing growing ESG requirements and reporting expectations.
You might also like
