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Should you buy or lease your business assets?
Jul 11, 2022
There are certain items of equipment, machinery, and hardware that are essential to the operation of your business – whether it’s the delivery van you use to run your home-delivery food service, or the high-end digital printer you use to run your print business.
When a critical business asset is required, should you buy this item outright, or should you lease the item and pay for it in handy monthly instalments?
To buy or to lease? That is the question
Buying new pieces of business equipment, plant, machinery or vehicles can be an expensive investment. So, depending on your financial situation, it’s important to weigh up the pros and cons of buying, or opting for a leasing option.
First of all, let’s look at why you might decide to buy the item…
Buying: the pros and cons
- Pro: It’s a tangible asset – when you buy an item, you own the item outright and it will appear on your balance sheet as one your business assets. As such, by owning these assets outright you increase the perceived capital and value of your business. You can also claim the cost of the asset against your capital allowance for tax purposes.
- Pro: It’s yours for the life of the asset – once you own the item, you have full use of the equipment for the duration of the life of the asset. Your use of the asset isn’t reliant on you being able to keep up regular lease payments, and, if your financial circumstances change, then you can sell the asset to free up the capital.
- Con: It’s an expensive outlay – paying for the item up-front is a large outlay for the business and will require you having the cash to cover this cost. Spending a large lump sum in this way may take cash away from other areas of the business, so you need to be 100% sure that this purchase is the right decision and a sound investment.
- Con: You may require extra funding – if you don’t have the liquid cash available to buy the item outright, you may need to take out a loan. Asset finance is available from funding providers, but does tie you into a loan agreement that will add to your liabilities as a business – reducing your worth on the balance sheet.
Leasing: the pros and cons
- Pro: Leasing has a cheaper entry point – if the item you need to purchase has a large price tag, leasing allows you to make use of the asset without the cost of buying it in full. For startups, and smaller businesses with minimal capital behind them, this can make leasing a very attractive option. You may not own the asset, but you can make use of it – and this may be the difference between the success or failure of your business.
- Pro: You can spread the cost – there is still an associated cost of leasing, but you can spread the cost over a longer period, making it easier to find the necessary liquid cash to meet your lease payments. With this money saved, you can then invest in other areas of the business, helping you to expand, and bring in more customers and revenue.
- Con: You don’t own the asset . There are, however, different types of leasing agreements. Under a capital lease, you do own the asset (once you’ve paid if off). But ,if you opt for an operating lease, this is a more short-term lease and you won’t own the asset at the end of the contract. Ownership does have its advantages (including being able to sell off the asset if required), so it’s important to consider what kind of leasing agreement you’re entering into and what the advantages/disadvantages may be.
- Con: You may pay more in the long run – most leasing agreements will attract additional costs and interest on your agreement, so you may well end up paying more than the market price for your asset in the long term. If you can cope with the higher cost, this is fine, but bear in mind that buying outright may have offered greater value.
- Con: You may lose the use of the asset – if you can’t keep up your lease payments (for example, due to poor cash flow) then the owner of the lease agreement may recall the asset. If this item is crucial to your business, losing this key asset can have a profound impact on your ability to operate. In this respect, leasing is more risky, but also an easier option for businesses with less cash to splash.
Talk to us about whether buying or leasing is the best way forward
Whether you opt to buy or lease your equipment isn’t always a straightforward decision to make, so it’s a good idea to consult with your accountant early on in the decision-making process. We’ll help you review your current financial position, assess your available cash flow, and look at your regular cost base to decide whether buying or leasing is the right thing for your business.
From 1 April 2024 “Electronic Marketplace” transactions will be subject to GST in New Zealand, even if the person delivering the service, is not GST registered. This legislation was passed in 2023, and although National campaigned on repealing this law if they got into power, they confirmed in December 2023 that they will now leave the legislation in place. The new legislation covers more than just properties, it also covers Uber and Uber Eats, for example. But we are just focusing on the property implications and what it means if you own or rent out a room, bach, or an investment property. If you have booked a property for a work or family trip any time after 1 April 2024, you should also continue reading, as there are possibly implications for you too. So, what does the law say? That platforms like Airbnb, Booking.com, Expedia, Vrbo etc. are required to charge GST on all transactions and pay this GST over to Inland Revenue (IRD) where the owner of the property is: GST registered: Pay 15% to IRD. Report your income as zero-rated on your GST return. This ensures the income is declared and you do not pay the GST twice. It also means that you claim your GST on expenses, and will likely receive refunds each GST return. NOT GST registered: Pay 6.5% of the GST to IRD and pay the remaining 8.5% to the property owner. If you are not registered for GST there is nothing for you to do. You only qualify for an exemption if: your income from these activities is over $500,000 per year: or you had more than 2,000 nights booked in a year. This means that all these platforms are frantically updating their software to allow for the collection and payment of GST to IRD. Here’s what we do know: Expedia : They have NOT been able to update their software and will be removing ALL NZ listed properties from 1 April 2024, unless you qualify for the exemption above. If you have a property listed on Expedia, they possibly may remove it. There is no clear guidance as to what happens if you have bookings for the future but we suggest you contact your guests. Be careful how you do this though, as it’s against Expedia’s rules to make contact with guests outside of their system. If you are travelling and made a booking on Expedia, you may also have an issue - contact your host to work out what to do. Vrbo (ex Bookabach): While owned by Expedia, they have upgraded their software and will be able to cope with the new GST. But be aware, from 1 April they will automatically add 15% GST to all bookings. So, this will increase your nightly rate by 15% and make your property more expensive. You will have to manually update your rates to reflect this change. Airbnb: They, too, have decided they will add 15% GST to every booking from 1 April 2024. Their system says they are not yet set up to deal with NZ GST. Booking.com: They have not yet provided guidance on what they are planning to do. Will they be like Expedia and just stop supporting NZ properties or will they be like Airbnb and just add 15% to all bookings? So, a warning, if you are not GST registered, and you have not told your platform provider, it appears they will default to adding 15% GST to your property and pay this 15% to IRD. How you get your 8.5% back remains a mystery. If you are planning on booking accommodation, be wary of using Expedia or Booking.com, as a booking after 1 April 2024 could potentially cost you 15% more! In any event, landlords and holiday makers should revert to their booking platform for the latest information and policies. If you want to know more please reach out to us.
Everyone likes efficiency, the more efficient something is, the better - right? Especially with the economic climate still needing some work. If you’re wanting to save some time (and money), making your business processes more efficient is a good place to start. It also means that you can put more time into working ON your business, rather than in it. Here are five ways you can make your business a little more efficient. Better invoicing This sounds obvious, but the more efficient you are at invoicing, the less time you spend on it and the more time you save. And time is money. Develop a process that makes this more efficient – which is something that can vary by industry. Think about whether you can set up recurring invoices or have your staff invoice for the job on completion. Where can you reduce the headache of invoicing and make it more efficient? Streamline expense claims Develop a digital solution for your expense claims process. This way your team can submit their receipts and approve expenses online – which reduces mistakes, and not having everything you need to approve the expense. Utilise online/digital software Almost everything has a digital version, so it’s time to utilise it so you have business data wherever you are. No more going back to the office to check a number, getting back to clients with final details, or reworking quotes because the numbers were wrong. If it’s all available at your fingertips, this drives efficiency. Maintain lean(er) stock levels If your business sells inventory, lean inventory management could help you reduce unwanted costs, and become more efficient. The idea is you only produce or order in the stock you actually need. By optimising inventory levels, you can reduce carrying costs and align supply with customer demand, which means you won’t be falling over, or holding space for, excess stock. Review your overheads Another component of business efficiency is keeping costs down – like overheads. Have you checked if the costs from your suppliers, like rent, bills, and transport, are needed? Have you also looked for ways to reduce these costs?Consider whether you can achieve the same outcome for lower costs? Could alternative suppliers provide a quality service at lower cost? Are office supplies being stockpiled from habit rather than need? If you need tailored advice on how you can make your business model more efficient, get in touch with us.
Finding the right staff for your business can be tough. Hiring can be challenging, but the right team can really support the growth of your business. Attracting the right staff starts with writing a recruitment ad that makes your role stand out in the crowd. Here are three ways you can make your job ad more appealing: Sell the role Rather than beginning the ad with the job description or a list of requirements, start with what makes the job most appealing. Is it the industry, location, pay, or perks? Be up front with the advantages so that it’ll grab people’s attention and encourage them to read further. Keep it short and sweet While it can be tempting to write a novel so that it paints your business in the best light, it’s better to keep your job ad short and sweet. Aim for a maximum of 700 words that are straightforward with readable language, and avoid adding unnecessary words or repetition. Avoid meaningless clichés Every job ad mentions their amazing team, or how the environment is fast paced. Everyone says they’re offering a ‘competitive salary’. All jobs are looking for self-starter’s or those who can hit the ground running. Rather than using the same phrases as everyone else, be different. What can you write that makes your business stand out from the crowd – you could provide the actual salary, for instance. Describe the job, the team, and the environment clearly and accurately. This helps the candidate get a genuine understanding of the role and that’s what piques their interest – not the same phrases that everyone else is using. Hiring Now that you’ve attracted the right person for your team, make sure you cover your bases when hiring (especially around trial periods). If you need help with employment contracts or other employment-related questions, let us know we’re here to help.
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