Lease vs. Buy: Choosing the Best Option

Buyers' Training
May 19, 2012 — 1,087 views  
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When many people consider if it's better to lease versus buy, they automatically think about what these options mean in terms of only buying a house or a car. However, purchasing professionals know there are a variety of items that can be leased or purchased and it can be challenging to know which is more beneficial to their company or business. 

Purchasing entails paying for an item so you can claim full ownership. On the other hand, when you lease something, you are paying for the right to use the item. Although leasing is not always an option, it is becoming increasingly more available for items such as shop machinery and office equipment. Quantifying is when you determine which is more reasonable than the other from an accounting standpoint.

Supply management professionals must understand the ins and outs of lease vs. buy analysis in order to consider the best course of action when purchasing. Entrepreneur magazine offers a variety of suggestions for determining whether leasing or buying is better for your business when you need to acquire equipment, office space and other necessities.

You may first want to consider how long you plan to keep the asset, explains the publication. If you expect to use it for an extensive amount of time, buying might be better. However, if you're only keeping the asset for the short term, leasing could be the prudent option instead of trying to resell it six to 12 months or so down the road. Find out if you will be able to buy out the item at the end of the original lease in case you need or want it longer. Keep in mind that if the asset is technology driven, it may be a good idea to lease as it could quickly become outdated or obsolete.

Leasing is sometimes a wise choice for businesses that don't have a large cash reserve. If you have to finance the purchase through a lender, you may need a certain amount of money to put down and leasing typically requires less upfront than buying. Furthermore, financing a purchase will show up as debt on a balance sheet, as opposed to leasing, which will not. Too much debt is unattractive to investors and customers. Evaluate your financial situation and stability when choosing the best option for your company.

Buyers' Training