The Types of Business Assets and How to Know Whether to Buy or Lease
Whether you are a seasoned entrepreneur, or you are still trying to find your footing in the marketplace, one thing is sure and that is you need assets to grow or remain successful. The assets you acquire for your business can range from a few items to average items to a lot of items and it’s your responsibility as a business owner to ensure that you buy the right types of assets at the right time.
Types of Business Assets
Most business assets can be categorized into three namely: tangible, intangible, and intellectual assets. The types of assets you acquire depend on whether or not you have enough cash upfront. If you do not have enough cash, are you ready to lease or is it advisable to get a loan and make repayments? The choice depends on your personal decision and what you believe is right for you at that point.[Great Read: How to Make Your Brand Attractive to Small Business Investors]
Now, let’s dive a little deeper into the definitions of the three different types of assets.
These are physical assets like furniture, building and equipment that are frequently used for business activity and lose value over time. Smaller items like pen, pins, sticky notes, etc. are not typically regarded as tangible assets.
These are assets that you can feel but you can’t touch. These include your integrity, friendly, reputation, attitude, etc. Intangible assets are usually not documented on paper, but they carry a lot of weight and can greatly contribute to the value of your company
These are forms of intangible assets that include branding, patents, and trademarks. You can protect your intellectual properties using copyright or trademark protection.
How to Decide Whether to Lease or Buy Business Assets
Once you create a list of all the different types of assets you need, you’ll determine a budget and then decide on whether to lease or buy those assets.[Great Read: Websites: Why You Cannot Afford to do Business Without One in 2020]
Leasing is great if you need expensive equipment to run your business or you need lots of equipment. It is better to lease at these instances, so you can focus on production instead of having to deal with production and maintenance.
Types of leases
There are two main types of leasing and these are capital and operating leases. The type of lease you choose has an impact on the taxes you pay.
Capital leases are more like a loan and for record-keeping purposes, these types of leases are deemed as loans. For your taxes, you can claim depreciation and interest expenses. Also, you are responsible for maintenance and other associated costs throughout the life of the lease.
On the other hand, operating leases are like traditional rentals. The assets do not belong to you and therefore you cannot claim depreciation or interest expenses. Also, you do not have to worry about maintenance or any tax obligations. The payments you make on such leases are regarded as operational expenses.[Great Read: How to Make More Sales This Holiday Season]
Benefits of leasing
- Payments may be tax-deductible
- Less cash upfront
- Opportunity to test out the equipment before making huge investments
- Opportunity to have the cash to do other things
Other than equipment, you can also rent spaces and even vehicles. Of course, you’d need to weigh in your options and need to do a cost-benefit analysis to determine if leasing is the right option for you.
Disadvantages of leasing
- More expensive in the long run
- Depreciation of the leased property is not tax-deductible
Other things to consider
If you are considering leasing equipment and/or property, other things you may want to consider are the length of the lease, termination clauses and whether you can buyout at the end of the lease. Be sure to read all the fine prints to ascertain that you understand the terms and conditions of the lease. If it’s a significant investment, you should retain the services of a lawyer.[Great Read: Dreaming of Starting a Second Business? Here are 3 Important Things to Note]
Leasing can be very expensive in the long run and that’s why it’s important to consider buying options as well. Some other benefits of buying include:
- You can save on cost
- You own the assets
Some disadvantages include:
- It might be a significant investment
- You will be responsible for the constant maintenance
- You might not have the opportunity to test out the equipment to determine whether it’s the right fit for you
In determining whether to buy or not, think about how much cash you have at hand or how much credit you are eligible to get.
To purchase an asset, you can either buy in cash or credit. In other to buy with credit, you have to be creditworthy in order to get loans from banks. Also, you may be able to get loans.
Loans can help you with cash flow, so you can have enough cash at hand. Whatever your decision is, be sure it’s an informed one.
As you grow your business, you’ll constantly have to decide how and when to acquire assets. There will be a learning curve. The higher you go, the more the decisions you’ll have to make. If you get confused, ask a mentor or those who have towed the path before you.
Thank you for reading! What is one thing you will take away from reading this article? Please share it in the comment box below.
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