One of the biggest decisions a business owner faces in the custom apparel industry is whether to buy or lease equipment. Investing in pricey machinery can seem risky, especially when the future of your company is on the line. To help make the decision a little easier, we’ve provided the pros and cons of buying versus leasing equipment.
Pros of Buying Equipment
Fewer Future Payments
Buying screen printing and embroidery machinery outright means your business will have fewer future expenses. If your company is starting out with a good chunk of capital, it can be advantageous to spend a larger amount at the outset and buy a piece of equipment to avoid continual leasing or rental payments.
There are some tax benefits to buying equipment, such as the Section 179 Deduction and tax deduction for depreciation.
The Section 179 Deduction allows businesses to deduct the purchase price of a piece of equipment from their annual gross income. To qualify for the 179 Deduction, the purchased equipment must:
- Be used directly to generate profit.
- Be used on an ongoing basis.
- Have a tangible impact on the business’s success.
If your business ends up using the same piece of equipment for many years, there is an annual tax deduction for depreciation. This accounts for the wear-and-tear your equipment receives in its daily use.
Many pieces of equipment are bought and sold used. If you need to update or change a piece of equipment, owning it gives you control over re-selling.
***Buying Pro Tip: When looking into purchasing a machine for your business, calculate the payback period. If you consider payback cost on every shirt you print on something like an automatic screen printing press, that can print a large volume of shirts a day with multiple setups, you may be able to cover the cost of the equipment in a desirable time frame.
Cons of Buying
For a smaller company, it may not be financially possible to shell out money for a large expense. In that case, it could make more sense to take on periodic leasing payments.
If technology changes too rapidly, your business could be stuck with out-of-date equipment. Certain pieces of equipment, like a manual press, lighting table or dryer, don’t change often and thus may be worth buying outright. However, newer equipment, like a Direct-to-Screen printer (also known as “Computer-to-Screen” printers), could be out of date in a few years, making a lease the more advantageous option.
Pros of Leasing
Low Initial Cost
If your company doesn’t have a ton of cash on-hand, leasing would provide a more affordable solution. Leasing still requires an initial down payment, but it’s much lower than the total cost of buying. Starting a lease can be viewed as taking on an employee; your company accounts for periodic payments toward the lease the same way you would a salary.
Tools like direct-to-screen systems and embroidery machines are updated frequently. A lease allows your business to adapt and update with changing technology, rather than spend a large amount of money on a tool that will soon be obsolete.
The expense of a lease is 100 percent tax deductible. This can save your company money come tax season. Leasing also allows for business growth. If your company leases one embroidery machine and grows to the point where you need two, you can lease another embroidery machine and deduct both from your taxes.
Cons of Leasing
Higher Overall Cost
With recurring interest and no resale value, leasing usually costs more than buying in the long run. While monthly or annual payments make less of an impact on funds in the short term, it’s important to look at the big picture when making decisions for your business.
Leasing your equipment takes away any possibility of resale, and equipment like screen printing machines are often sold and bought used.
Leasing can be limiting and expensive in that you must pay the full term of your lease, even if you stop using the equipment.
At the end of the day, the decision of whether to buy or lease equipment should be based on your business’s specific size, needs and cash on-hand. It’s important to take into account tax breaks and resale value when estimating total cost for either option.
***Pro Tip: To analyze the financial impact of leasing or buying equipment for your business, use this calculator.
Did your business buy equipment, or lease it? Let us know in the comments!