Anybody who’s just started out with their business can attest to the fact that capital expenditure (CapEx) is a constant and pressing requirement that needs to be kept in mind at all times. There are a lot of things that fall under the umbrella term of CapEx, such as the purchase of property, repairs, or – the focal point of this article – industrial equipment and office furniture.
After all, at the end of the day, businesses need to invest in CapEx to make their business appealing to investors, which is what most businesses clamour for. However, at the same time, one should always keep in mind the element of cost-effectiveness. There’s little to no point in investing in capital expenditure if the end result doesn’t really add any value to your business as a whole.
Businesses have two options to fulfill this goal – leasing and purchasing. Signing a contract to temporarily acquire the furniture or purchasing the equipment permanently by either dipping into your savings or going for the best business loan. It is evident that both these choices have their pros and cons. Asking yourself the following questions will help making an informed decision.
For how long is the equipment required?
It is a wise decision to think about the time period for which you plan to use the equipment. It is important to gauge the type and usability of the business equipment before you finalise a purchase decision. While it is fine to use furniture for the long term, technology is something that keeps on evolving over time. If the equipment in question won’t be used for more than 4-5 years and might become obsolete over time, then leasing is perhaps the best option. However, if the said equipment will remain relevant in the long-term, then you should purchase it instead.
Is cash flow an issue?
Companies need to take a look at their current cash flow and gauge whether investing all the savings to buy the equipment is a financially viable decision or applying for online business loan.
However, long EMI tenure implies a higher amount of interest paid, which will ultimately hamper your cash flow. If you feel that this option will not fit your pocket, then going for a lease is a better option.
Can you take advantage of any tax benefits?
Tax benefit is another aspect you should take into account while looking for capital expenditure. Investing the entire amount from the company savings won’t provide any cost benefits, but it’ll be a cheaper investment in the long term. Looking for business loans in India generally tend to provide tax benefits. However, you should know that these benefits might not be worth the overall investment in long-term.
Meanwhile, with a lease, you can shift some of the bonus depreciation onto the lesser, allowing you to adopt a lower payment structure as a result.
There are a lot of tax ramifications between taking a lease and opting for a loan. Consulting financial experts like a CPA will help make an informed decision.
As a business owner, run an elaborate research to get these three questions answered. Business investment is a long term plan making cost-effective decisions regarding the purchase of office furniture and IT equipment is the first step towards sustainable workplace. The result of a well-thought-out investment in your CapEx is a whole host of benefits in the long run.