Cash or loan

[Don M. 14]

If you were going to buy 12,000 in new equipment, and you had the cash, would you pay cash or lease it?

[Patrick at HMSGA 14]

Cash is king if you can afford to do it, not having any monthly payments to make on equipment is really nice, but the amortization is still taken over a long period of time so your tax benefits are spread out over that time.

Do they still have those leases where you make the lease payments, fully deducting them as expenses, then at the end of the lease period you can still buy the equipment for like $1.00 ??? Monthly lease payments are fully deductible so you can take advantage of that and get a bigger write off amount taken over a shorter period.

When you buy the equipment for the $1.00 isn't that the only expense left that you would have otherwise had to amortize over several years? Surely they will let you go ahead and take it all that first year.

Please correct me if I am mistaken.

[Paul Kassander 26]

Cash is best unless you are getting an extremely low interest rate, otherwise the interest will kill you. If I am not mistaken you could deduct all of that equipment in one year with a sec 129? deduction.

[Jeff 232]

If you have the cash, why pay the extra for lease over the years. Good luck

[Don M. 14]

I was thinking tax benefits....

[Patrick at HMSGA 14]

I was thinking tax benefits....

That's what I understood when I read the post. Interest isn't exactly sky-high right now, so leasing might be a cheap loan WITH tax benefits.

Use some of the cash money to kick your advertising and marketing up a notch, keep that new equipement BUSY....lol

[Don M. 14]

Thats what I was thinking Patrick. Reserve the majorty of the money for marketing and just make the 200 or so payment a month on the equipment.

[FCPWLLC 233]

Leasing is the way to go. The Tax benefits outweigh the interest. Yes you can take a 179 deduction but won't be able to depriciate the item in the future years.

The cash would be better spent on Marketing/image. Also, handled right, there are investments that you could make with that money that would also offset the interest. It's nice to have the cash available to take advantage of opportunities that knock. Nothing worse than finding a great deal on a low mileage truck but no cash on hand.

Let the equipment pay the payments. Leasing is yet another form of Making money with OPM (other peoples money)

[R L S 14]

I would lease or get a loan. Its a good idea to have a big goose egg set aside to keep things running smoothly and to make payments or buy something big when you dont really expect it.

[Scott Stone 604]

I would talk to my accountant, because what is best for one person is not necessarily best for another.

BTW, When I bought two new machines a couple of months ago, she said cash.

[JFife 14]

...Also don't forget to include "emotion" into the equation......I hate owing people money. I know, I know, it's a necessity to use other people's money to make money, but I'd prefer a utopia with no monthly payments of any kind. How do YOU feel about owing money every month on your equipment?

Other thought--if you sell your biz--equip holds little value (not much of anything really does, actually). So maybe not wrapping your money up in equip. isn't a bad idea. Other thing---the work I do is extra-litigous, so I'm always thinking that the less I own, the less one could take from me in a worst-case scenario. For that reason, I am selling some expensive items we have and going to a per-job rent (lifts, compressors). Keeping assets and overhead down, per job expenses go up a little though. And keeps me from feeling as tied-down. One thing to pay cash for---enclosed trailers. Actually appreciate, which is pretty cool. Flatbeds may too if in good shape.

[Don EMS 14]

Ask for a cash discount, 10% off of $12,000 =$1200.

[GymRat 14]

I agree with Scott, everbodys situation is different. I would rather pay cash, and not try to play the lease game and worry about work becoming slow and my business is not making enough revenue to pay all the bills. My opinion is the overhead is low enough in the pressure washing business that your profits should be able to support your business and buy the essentials without going in debt.

[PressurePros 249]

There are a bunch of factors to consider. Leasing depends on captialized cost and residual value. For cars/trucks.. I always lease. Pay the depreciation. Thats all you do when you buy a car anyway. The rule of thumb is never buy anything that depreciates. All points are valid here. I understand the emotional factor. I own everything 100% from vehicles to equipment. But it's also all starting to show its age and needs to be upgraded to keep with public image and perception. Keeping emotion out of it, a monthly nut is just a cost of doing business. I will lease from here on out.

Don gets the prize for nailing it.

If your capital is low (or even if it isn't), you need your money to generate business via marketing. The return on marketing far exceeds the interest on a lease.

Paying a money factor on $10,000 worth of leased equipment for a 36 month term may cost you realized depreciation (Capitalized cost minus FMV at the end of the term) plus another $80 in interest per month. The interest (money factor) is your only expense as depreciation is the same whether you buy outright or lease your equipment. So for an extra 120 bucks or so per month (factoring in the residual cost if I owned the equipment outright and what it would be worth after three years) I get to keep my $10,000 in the bank and use it for marketing. Ask yourself this, again.. emotion aside. Which would affect my bottom line more over three years? A loss of $2600 in interest and having a boat anchor you would have to sell..or an aditional $10,000 to add to your marketing budget?

For a $4600 loss (spread over three years and includes $2600 in interest plus not having any owned equipment which would have a residual value of $2000), I would have an additional $10,000 in hand to supplement immediate marketing efforts which would yield me an extra $60,000 in gross receipts (thats conservative).

Using my marketing budget, that would give me an additional $3000 the following year to spend on marketing. That would compound of course.

In my opinion, leasing is free money. Yes there is a risk of business failure but if you do things right and use your money wisely, that won't happen.

[PLD 14]

I would talk to my accountant, because what is best for one person is not necessarily best for another.

BTW, When I bought two new machines a couple of months ago, she said cash.

Scott's right on. It's very personal and you need to consider taxes, interest, and cash flow. I have borrowed for things I could have paid cash for because I wanted that cash there in case an opportunity arose that could not be financed.

An example: Philip has 6K. A new skid is 6k. Interest rate is 9%, CD's are paying 5.5%. Pay cash, right? Maybe. What if your truck blows up next week and you need a new engine (6k). Joe's garage doesn't finance, so you have to take out a new unsecured loan at 11%. Should have financed the skid... And there are other just as likely scenarios that would dictate that you pay cash.

[GymRat 14]

Agood business plan or lack of there of, is often botched in the world wind of everyday life emergencies. Is that why it seems to me a cash advance business popping up on every corner? Is it poor planning or lack of planning, or is it the new American way, to max out your funds, and the first rut roh that comes along you go into the panic mode, and have to start the quick spiral down hill of maxing out credit cards, and hitting the cash advance store weekly?

Thats the beauty of this business, there is plenty of money out here to be made, and with a little planning, or even a little luck, your business can prosper.

[Jeff 232]

Id like to pay cash for everything, some of my equipment is leased, my accountant likes it that way. Dont spend all your money on just equipment, have some in reserve

[Ron Musgraves 240]

My tax guy wants me too lease and spend more money on new equipment. I have not had to buy new in over ten years. I find 50 hour machines are available ever so often and I pick them up regardless the need.

I would say that leasing is a huge write off, better than depreciation. I lease my shop to myself to get the write off, it a 100% deduction. Of course this is where everyone situation is different. It all depends on the gross income and other deductions.

I would agree that leasing is better, do I do it? No…… I too like the idea of purchasing new used equipment for 10cents on the dollar.

If I purchased new I would lease. Most definitely.

[PLD 14]

I would agree that leasing is better, do I do it? No…… I too like the idea of purchasing new used equipment for 10cents on the dollar.

If I purchased new I would lease. Most definitely.

Why don't you buy the used equipment for 10c/$ and leases it to yourself. That way the $$$ for the lease comes back to you w/o SE tax attached.

[Ron Musgraves 240]

Why don't you buy the used equipment for 10c/$ and leases it to yourself. That way the $$$ for the lease comes back to you w/o SE tax attached.

To be legit in az you need a license to lease with the fed id numbers so the leasee cant write it off.

renting a building is different, you can rent the building to yourself and it legal.

[Wayne S. 14]

word of caution, before you go the route of leasing, know what you are getting into. I contacted a company about purchasing a used box truck for $5,000. I used an on-line lease calculator to see what payments would be for a worse case scenario. According to the on-line calculator my payments would be $189 a month, when the lease company sent me the contracts my payments was going to be $269 a month for 3 yrs, and a deposit/w 2 payments of $926. With a $1 buy out clause at the end of the lease. Well over double payback of the original amount borrowed. They were feeding me the "well, since your a new upstart business we have to charge you extra on interest and this and that crap". Their interest rate was at a supposed 16% interest, they supposedly based that on my personal credit, which is quite good. Needless to say I did not lease the truck through them, I just bought it outright.

And of course, you guessed it, the motor blew up in it on the way home, now I've had to borrow the $3500 to have a Jasper motor installed in it. It's still in the shop as we speak.

Good luck on whatever you decide! I hope your luck is better than mine.