Buying is not the only option for manufacturers, there are some reasons you should consider leasing such equipment. You need to bring some factual and rational thinking into the equation before you consider whether to buy or sell. It is important to consider the revenue-generating capabilities of the equipment, the longevity of the equipment especially the long-term cost of usage of the equipment. One other factor for consideration is known exactly how long you will use the equipment so that you don’t pay too much in maintenance servicing when you should be thinking of re-selling the equipment.
The following are pros and cons of buying and leasing that you should think about before making your final decision.
What are the advantages of leasing manufacturing equipment?
The number one advantage of leasing manufacturing equipment is that most lease payments are tax-deductible and the reason being that leasing manufacturing equipment is considered an operational cost. Secondly, leasing will help you budget appropriately because the repayment is predictable and can be spread for several years. You can expand your options on the equipment through leasing because you don’t have to pay an up-front cost. In some cases, you may not have sufficient money to buy manufacturing equipment outrightly, but leasing can afford you that chance of getting the equipment.
Another benefit of leasing is that you can avoid additional and hidden charges. The reason for this is that most manufacturing companies are responsible for the repair of the leased equipment. Though you may pay more on the long run, especially on costly manufacturing equipment such as Thermo Fisher Scientific used in industrial distillation procedures, the benefit of paying on a long term still remains a viable and reasonable choice.
What are the disadvantages of leasing a manufacturing equipment
Perhaps the most significant disadvantage of leasing manufacturing equipment is that you wouldn’t have any return on the equipment especially when you no longer need it- in most cases, the equipment will be retrieved. another disadvantage is that the length of your lease may extend beyond your need, this means you still pay for the lease, even when you no longer need the equipment.
One disadvantage of leasing manufacturing equipment is that disagreements may arise on the repair, and replacement of the equipment- in some cases, you may have to wait for a long time for repairs that require urgent attention. Under the lead agreement, manufacturing equipment availability may be limited to availability, which means you may have to settle for equipment that is below the one you desired. Lastly, payments on the lease agreement can slow down your profit earning, and that could create a negative impact on your success goals and objectives.
What are the advantages of buying manufacturing equipment?
Perhaps the most significant advantage of buying manufacturing equipment, as opposed to leasing is that repairs and replacement are handled on your terms, therefore you wouldn’t have to wait for manufacturer or seller to decide when to fix damaged equipment. There are tax incentives on outright purchases of manufacturing equipment (The IRS tax code, section 179), but there are caps or limit to such tax incentives. If the manufacturing equipment fails to qualify for the IRS tax section 179, then you should be able to apply for a depreciation tax deduction.
It is better to buy equipment that has a longer shelf-life than leasing because of the return on investment especially when you lease it out when you no longer need it. One other great benefit of buying instead of leasing is that you will likely find a financing option that will use the equipment you purchased as collateral and that could lead to a much lower interest rate.
One more benefit of outright purchase of equipment is that you will be able to resell the equipment, even at a higher price, if it is very scarce equipment and there is a competition for such.
What are the disadvantages of buying manufacturing equipment
One of the problems with outright buying of manufacturing equipment is that you may find yourself settling for lower cost alternative. If you are always in a rush to purchase equipment, you may have little time to research or explore your options, and that could lead to buying a less expensive one when you can’t afford a better one.
Another disadvantage of buying manufacturing equipment is that you wouldn’t be able to return it if it breaks. In some cases, you wouldn’t even be able to sell a broken down new manufacturing equipment. In this case, you need to pay careful attention to the warranty on that specific manufacturing equipment to be sure of what the warranty covers and for how long the coverage extends. If you purchase manufacturing equipment, you may not qualify for funding options, especially for other expenses.
Conclusion
From the pros and cons of leasing compared with buying, one could easily say that buying is a better option, only if you can afford the outright payment for such equipment and you have a serious maintenance plan.
Aside from the primary considerations that should guide you into leasing or buying manufacturing equipment, there are some other considerations you should consider before making your final decision. The value of the tax deductions, for instance, should be considered, especially if it can help you save several hundred or thousands of cash.
Secondly, when buying new manufacturing equipment, you must estimate the resale value at different points because it is possible you have to resell it if you no longer use it or the cost of repair is beyond what you can afford. When you are leasing a manufacturing equipment, you should try and negotiate a buying option especially when you have the desire to use the equipment on a long term- in this case, a portion of your lease payment could be added to the purchase price, which means you will save more money on the long run.
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