Every new business owner needs some type of equipment. Whether machinery to make something or software to track inventory, some kind of equipment will be needed. Unfortunately, that equipment can be very expensive. So to combat those costs, some business owners opt to lease or buy used equipment. Unfortunately, saving money upfront can lead to longer-term issues for your business. So here are the pros and cons of buying new equipment for a startup.
Looks – For a startup, appearance can be everything. If the equipment will be seen by clients, the value of appearances may outweigh the added costs.
Warranty – Most new equipment will come with some form of a warranty. That warranty will give you peace of mind that there will be no unexpected costs down the line from something breaking down and needing servicing or replacement.
Condition – You know what you are getting with something new. When buying used equipment, you may get stuck with someone else’s problems. If they were not properly maintaining the equipment, or if it was simply a lemon, you’re now stuck footing the bill for repairs.
Cost – If you plan to own this equipment for an extended period of time, buying new will always be cheaper than leasing. It can also be cheaper than buying used if a ton of maintenance will need to be done to the used item which can be offset by a warranty on the newer equipment.
Cost – New is always more expensive than used. If you only plan to use the equipment for a short period of time before upgrading, used equipment will save you money. And as we all know, cash flow is everything for a startup, so that savings could literally save your new business.
Cash – With most new equipment, some form of the down payment will be required. With leasing, on the other hand, there is usually no expectation for a down payment, meaning you can save your cash today.
Commitment – When buying something new, you are committing to using it for an extended period of time. By leasing or buying used, you can cut your costs and stay current. This is particularly important in fields where technology is always changing or for things like computers, which become outdated seemingly overnight.
Financing – It is usually harder to get financing on new equipment than on used or leased equipment. Depreciation is cooked into the purchase price of a used item, meaning there is less risk to lending. And leasing contracts are usually funded by the manufacturer of the equipment, and they will often be more flexible than traditional lenders. And either way, the cost is lower making it a smaller impact on debt-to-income ratios, and thus easier to approve.
Whether you ultimately decide to buy new, buy used, or lease, make sure you do your research and really understand what you are committing to. It’s also important to safety and lockout devices to your new purchases. If not understood and accounted for, the upfront and higher costs of buying new can kill a business today, but the long-term costs of leasing or buying used can kill a business tomorrow.
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