Buying Assets for your Business
Buying assets for your business should be a major consideration, especially if you are a start-up company. There are a few benefits and disadvantages to purchasing assets outright as opposed to leasing or hiring the equipment needed to run a company.
Outright PurchaseBuying your assets outright can be a double edged sword. On one hand you may need to seek funding to pay for the assets, which can come in the form of loans or a chunk of your capital investment. On the other hand the equipment you acquire through purchasing can be used as security for future borrowing needs once they have been paid for in full.
Borrowing money to pay for your assets will usually require you to pay interest fees and monthly payments to a finance company. These repayments can be a sizeable amount, which is why a number of businesses spread their payments by using hire purchase or leasing alternatives.
Advantages of Buying OutrightThere are some significant advantages to purchasing the equipment needed to run your company. You will have a wider choice of suppliers when purchasing outright as opposed to hire purchase through selected providers. Once the item has been paid for, you will be the owner, meaning you can use the asset as security against future funding requirements. You will also be able to sell the asset if it is no longer needed. There are no long term contracts as there would be with hire purchase. There are also a number of tax allowances available to those who purchase instead of leasing.
Tax BenefitsThere are a number of tax benefits and allowances that can be obtained through your purchases. Capital allowances means that businesses can offset the cost of certain purchased equipment against taxable income. Businesses do not need to include the first £50,000 of the funds spent on equipment and machinery in their taxable profits.
Businesses can also claim 100% enhanced capital allowances if the equipment or technology they use is energy efficient or a benefit to the environment. There is also tax and National Insurance relief on equipment used by employees for business purposes.
Disadvantages Of Outright PurchaseThere are some significant disadvantages to the outright purchasing of assets. These disadvantages will include:
- You will have to pay for maintenance and repairs to the asset
- If the asset becomes outdated you may have to sell at a lower cost than originally paid for
- You will need to pay for the asset from your capital funds
- There are tax benefits available for equipment rental that you will not be able to claim for
- Using overdrafts and loans to pay for the asset will mean you are paying interest fees, which will add to the cost
Should You Buy Or Lease?The answer as to whether it is better to buy or lease is never clear cut and will depend on your circumstances. A number of businesses use a combination of both methods to run their company, buying the small equipment needed and leasing the more expensive equipment.
Leasing equipment on a short-term basis does give you the chance to test the asset out to make sure it is the right choice for your company. By buying outright when you have the funds to do so your fixed expenditure will be lower. Buying can also be the cheaper option and have tax advantages as opposed to long-term leasing.
Weighing Up The Pros And ConsAnyone starting a company should take advice from business advisors as to all of the pros and cons of buying outright. If funding is required then the money needed for assets will be required in the business proposal. Banks and enterprise agencies will be able to give a full breakdown of the best options on buying, leasing or hire purchase depending on your business type. Purchasing outright can be seen as an investment, but for the small start-up it may consume a sizeable amount of capital.
Buying assets outright does need to be carefully considered. The start-up company should focus on the equipment they need to get their business up and running, and look at the most cost efficient way to achieve this. Compare buying, leasing, and hire purchase costs before making your final decision and take advice tailored to your circumstances from business advisors.