Lots of businesses are double-minded, specifically startups either to buy assets or to lease assets. In this blog, you will know what the benefits & drawbacks are of buying assets as well as leasing assets. It will help you to get a clear picture of your organization either to buy assets or lease assets.
Why Is It Better for Startups to Lease Assets?
As being a startup there are lots of responsibilities and buying assets is useful for the long term and you need heavy capital investment in order to own assets.
For a startup, it is better to focus on organization development rather than struggling with maintenance. Moreover, startups do not have too many resources to invest in.
According to Statista, “It is projected that the revenue of rental and leasing of other machinery, equipment, and tangible goods in the United Kingdom will amount to approximately 25.122,4 million U.S. Dollars by 2024.” It means that leasing equipment is a beneficial and smart strategy for business.
What Are the Benefits of Leasing Equipment?
The benefits of leasing equipment are discussed below:
1. No Maintenance
When you lease an asset you do not have to worry about maintenance as it is the responsibility of the owner to keep it maintained. You can focus on organization development and fulfilling customer demands and asset maintenance is the responsibility of the sole owner especially if the asset is not leased for more than one or two months (depending on contract basis and nature of asset).
2. No Initial Cost
You do not have to huge amounts of money in order to use the equipment. When you lease assets or equipment you just have to pay monthly rent and start work.
A startup has a lot of expenses including equipment gathering. Moreover, it is better to save money for future expenses and business growth.
3. Asset Need for the Short Term
There are several organizations that lease equipment because some other organizations have contacted them, and a contract is given.
If an organization finds this contact useful, they lease equipment from some other organization completes work orders, and return assets to their owner.
What Are the Drawbacks of Leasing Equipment?
Drawbacks of leasing equipment are discussed below:
1. Expensive in the Long Term
Leasing equipment proved to be a good strategy if it is used for the short term but if you use lease equipment in the long term it will be more expensive than buying.
Here is an example suppose you lease a machine for $50 per month for 3 years whose actual cost is $1200. Now not only did you pay $600 extra, but you don’t own the machine as well.
2. Strict Rules and Regulations
When a contract is created for leasing it is strictly mentioned either you use equipment or not you have to pay the full amount. Before leasing the equipment, the condition of the equipment must be checked because if performance is not as per level the work might suffer.
Some organizations mention in the contract the condition of assets so that if any huge issue occurs it will be the responsibility of the owner or lessor.
3. Take Care of Equipment
If you use more than its efficiency then you will have to pay for extra usage. Furthermore, you have to put it in good condition if any wear and tear parts are done then you must pay extra money for that.
What Are the Benefits of Buying Pieces of Equipment?
The benefits of buying pieces of equipment are discussed below:
1. Tax Benefits
One of the most basic advantages of buying equipment is that you can get tax benefits which will directly help you to save money.
Ownership gives you the freedom to make decisions regarding a maintenance or anything. If assets need maintenance or not when they should be given maintenance and if the machine is not used as much, then you can sell it. Furthermore, you are not bound by any agreement or contract.
3. Increased Productivity
An asset can be used as per the requirement without worrying about anything. Moreover, when you use new equipment, it increases the speed of production work. As a result, productivity increases of machines as well as workers.
What Are the Drawbacks of Buying Pieces of Equipment?
Drawbacks of buying pieces of equipment are discussed below:
1. Not Good for the Short-Term Goal
If you have got a production contract and you need a machine for that then it’s better to take it on rent not to own it. Owning a machine will be costly and it is not a good option when you only have a requirement for the short term.
2. High Initial Cost & Upgrade
You need to spend a huge amount of money in order to buy a piece of new equipment. The expenses do not end here then you need to keep equipment upgraded that can also be expensive.
Especially when there is a lot of competition in the market you and your machine need to be upgraded in order to stay competitive in the market.
3. Expensive Maintenance
When a sudden breakdown occurs then it may lead to increased maintenance expenses as this asset might be crucial for daily operations. If sudden failure happens frequently then selling would be the best option.
How Equipment Leasing Software Is Helpful for Startups?
Now that we have seen for startup equipment leasing is a good and smart choice. It is better to lease equipment, and, in the beginning, phase, they can avoid buying assets.
Just leasing equipment will not solve the problem for startups as they will require equipment leasing software as it will provide a complete overview of the leased assets and pieces of equipment.
Most importantly, you cannot misplace leased assets otherwise that will be considered as a rule violation, and you will pay to end up paying a huge amount of penalty.
Equipment or Asset leasing software can help in keeping track of assets, but it can also assist in asset monitoring the health and performance of assets.
Furthermore, you can also enter data about the condition while taking it on lease so that no confusion occurs while returning assets.
As you can save expenses in the short term but in the long-term buying is a better option. Moreover, in the long term, you will have sufficient money to purchase assets.
Furthermore, you have to keep in mind all the positives and negatives while making a smart decision.
Equipment leasing software is helpful to startups. It is a type of asset management software that assists in several ways as mentioned above.
There is no doubt that this software is helpful to organizations that are using equipment or asset on lease.
Frequently Asked Questions (FAQs)
Equipment leasing software is one of the most important software for small size organizations and those organizations that lease equipment for a specific period of time. It helps ensure compliance, rules, and regulations. It will alert you in advance for each asset when it needs to be returned. Moreover, it provides reports of each leased asset and equipment which helps calculate return on investment (ROI).
The benefits of equipment leasing software are discussed below:
1. Data integration
2. Helpful in improving customer service
3. Informed decision making
4. Monitor asset performance
Rental assets are bought for a short term of time, for example, one day to thirty days. Whereas leasing equipment is bought for a longer period than rental assets. There is no agreement signed between the lessor and owner in rental whereas there is an agreement between the lessor and the owner of leasing equipment.