Before you make any decisions, it\u2019s important to start with a well-thought-out acquisition plan. Weigh your current stock of assets against your needs, then determine if you have the capital budget and cash available to cover those needs. Think through your goals and what gives you peace of mind.<\/p>\n\n\n\n
If it\u2019s important to you to have a fresher fleet to draw upon, to have the latest technology, to lower your maintenance costs, to have at least part of your fleet under warranty, and to get the best course conditions possible within your budget, then leasing makes a lot of sense.<\/p>\n\n\n\n If your preference has always been to purchase equipment and run it until it dies (which is the chosen path for some), then buying your equipment is still an option. You\u2019ll need to be prepared for higher maintenance costs over time, but you may be able to balance it by enjoying some time with no payments to make. However, when the economy goes into \u201clockdown\u201d mode, the capital expense budget is usually the first item frozen. If your only source of money for equipment at the moment is from operating expenses, you may want to consider leasing until your CapEx budget is unlocked.<\/p>\n\n\n\n Let\u2019s take a closer look at both options in terms of financing, which can help you get the equipment you need now.<\/p>\n\n\n\n Finance Option 1: Leasing<\/strong><\/p>\n\n\n\n A lease is similar to a long-term rental. You acquire a piece of equipment and use it for the term of the lease. When the time is up, you typically have the option to renew the lease, purchase the machine at fair market value, or return it. You get the most \u201cbang for your buck\u201d because you\u2019re only paying for the portion of the machine\u2019s lifecycle that you use.<\/p>\n\n\n\n In all economies, leasing is usually best for higher-usage items you plan to cycle through more quickly or want to avoid the higher maintenance portion of the equipment lifecycle. Today, leasing is also generally viewed as the best choice when capital expense funds are limited.<\/p>\n\n\n\n One thing to keep in mind is that FMV (fair market value) leases must be accounted for in the balance sheet as a right-of-usage asset and liability. However, an FMV lease generally results in a lesser amount of additional asset and liability than owning. This is because instead of putting 100% in the liability column of your balance sheet, you\u2019re now putting the Net Present Value of the rental stream on your balance sheet, so the number is reduced.<\/p>\n\n\n\n Finance Option 2: Conditional Sale Contract<\/strong><\/p>\n\n\n\n For many courses, the traditional choice has been to purchase equipment with installment payments. This is called a Conditional Sale Contract (CSC) and is sometimes referred to as a Buck Out Lease. It\u2019s best for long-life assets you plan to keep for an extended period of time, such as aerators or tractors that you may not use every day but are still mission-critical for certain tasks.<\/p>\n\n\n\n By purchasing, you own the machine subject to a security interest by the finance company. It\u2019s listed as an asset and liability on your balance sheet, so the depreciation and interest expenses may be tax deductible for tax-paying enterprises. However, because of changes in the corporate tax rate, keep in mind that interest expenses and depreciation of ownership may be worth less than they used to be. Plus, tax deductions are only valuable if you have income to offset with them, so if you\u2019re in a situation where your income is challenged because of the economy, then the value of the deductions is reduced even more. Your accountant or tax preparer can help you sort through this in more detail and find the best solution for your situation.<\/p>\n\n\n\n![\"\"](\"https:\/\/toroadvantage.com\/app\/uploads\/2020\/09\/article-lease-v-buy-1.jpg\")
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