Buy or Rent: How to Handle Equipment for Your Small Business
Some businesses find that they need the use of industrial or heavy equipment to get the job done. However, the equipment in question may only be needed on occasion. For example: A small construction contractor may only need to rent a Bobcat for a couple of days, or an office complex needs to reach burned out bulbs in a high ceiling but doesn’t want to buy a scissor lift. It’s a judgment call whether to buy or rent, and sometimes renting wins out. Following are some of the ways a small business can handle the buy or rent decision.
Difficulties of Making the Decision
Some businesses find that they need a piece of heavy equipment on an infrequent basis while others need it for a longer period of time but not the entire year. There is something to be said about having a piece of equipment on hand whenever it’s needed instead of dealing with the downtime of sending someone to get it or have it delivered. Owning is a time saver and a convenience. But the carrying costs that come with ownership may not be worth it.
On one hand, the business has the benefit of owning a piece of equipment that it can resell later, but it will also have to find the money to buy the equipment in the first place. Furthermore, the equipment may soon be outdated if it has technology that doesn’t age well. A business needs to weigh the pros and cons of buying versus renting a particular piece of equipment for its operation.
Buying or Renting Vital Equipment
Some pieces of equipment, such as a scissor lift, are needed regularly to get a job done, such as putting lightbulbs in a high ceiling or getting drywall installed in hard to reach areas. However, these jobs tend to come at the end of a project and keeping something like a scissor lift waiting around for a few months incurs carrying costs. A piece of equipment that doesn’t do anything to help generate income becomes a money sink if it was bought with a loan. Making payments on idle equipment doesn’t do much to benefit the business. This is a case for renting for a short period instead of keeping the equipment around.
Tax Benefits of Renting or Buying
A business gets a tax deduction on its income regardless of if the equipment was bought or leased. The payments that went toward the leasing of the equipment can be taken as a business expense and reduce the final amount of taxable income. A similar advantage is offered for those who decide to buy with the added advantage of depreciation over time. Fully deducting the cost of purchase all at once is also possible.
These are some of the considerations that a business has to put into the decision-making process. The one advantage of renting is that there’s always the option to buy the equipment at a later date. Weigh the options carefully, and go with the one that makes the most sense.