Any business owner who needs expensive equipment to operate a business successfully wrestles with the question “Should we lease or buy that asset?” Which begs a follow-up question: “What makes a good equipment leasing program?” Important considerations when making the lease versus buy decision may differ depending on the asset, but is especially relevant when addressing assets that need frequent upgrades such as technology or a fleet of vehicles.
With the new lease accounting standards for ASC 842 and IFRS 16, there are opportunities for equipment leasing cost savings as well as reductions in sales tax. When appropriately implemented, the new lease accounting standards will bring a better understanding of the processes, overall performance, and increased scrutiny which can make leasing more efficient and cheaper than ever before. It can also provide strategic and financial benefits to your company.
Every lease should undergo a lease versus purchase analysis to ensure success. When making this decision, it is best first to answer these questions:
• Will your monthly budget accommodate the purchase price?
• How will a lease vs. purchasing impact financials?
• How long will the equipment be used? What is the annual depreciation?
• Is the equipment likely to become obsolete soon?
• Will there be a tax difference by le the equipment is leased versus purchased?
Develop a standardized contract with common leasing terms and conditions that are dependable and stay with it. Design a business strategy for leasing and use it wisely. An example might be including lease agreements as another source of credit for your business. There are many moving parts to a lease agreement, but if managed effectively, more equipment may be leased than initially thought possible.
Equipment leasing programs can be inherently difficult to manage because of the wide range and variety of equipment needed and the decentralized nature of leasing programs. The equipment may be located in various locations, or it may be highly mobile and managed by numerous people. Accountability becomes critical, and it’s important to start before the lease is executed. Many term-end difficulties begin during the lease negotiation. Implementing Costar’s proven lease management software will assist with calculations necessary for making fully informed decisions to ensure continued growth. The same software can help with calculations needed to meet lease compliance standards. The deadline for lease accounting compliance is year-end 2019 and CoStar is your critical path to success.