Lease or Buy: A Quick Guide

As a small business owner, you may have to decide between leasing or buying an asset. Oftentimes, this decision rests largely on the financial cost comparison between each option. However, there are many other things to consider as well, and each alternative has its own benefits and drawbacks. We’ve put together a quick guide to help with making the decision to lease or buy, be it equipment, vehicles or something else.

Consideration	Lease	​Buy
​Ultimate ownership	No	Yes
Capital outlay	Low; monthly payments only	High; upfront payment or financing arrangement required
Tax deductions	Deduct the full lease payments in the year they are made, whether operating or capital lease	Slower deduction of the full capital cost over multiple years
Warranty	Entire lease period is likely fully covered under warranty	Warranty period can end during ownership
Responsibility of disposing the asset	No responsibility, other than returning it to the lessor in acceptable condition	Responsible for the future disposal of the asset
Affordability	Ability to use an upgraded version of an asset that would otherwise not be affordable to purchase; premium paid in the long run, if you continually lease	Ability to negotiate a lower purchase price when paying upfront or buying multiple items; may be able to negotiate package deal
Depreciation of the asset	Considered in the lease cost; simpler accounting	Must account separately on the financial statements
Usage restrictions	Limited usage (e.g., kilometres-driven allowed for vehicles); heavy penalties for overages	No limitations on usage
Long term usage	Right to use the asset ends with the lease, unless the asset is purchased afterwards	Payments eventually end, and you still have the benefit of using the asset for the remainder of its useful life
Financing options	May come with low (or 0%) financing options	Some vendors offer lower cash purchase prices, or negotiated rates
Insurance costs	Comparable to ownership	Comparable to lease
Residual value	Higher residual values at the end of the lease term may require higher buy-out prices if you choose to purchase the asset afterwards	Assets with longer useful lives command higher upfront purchase prices
Nature of business	Freedom from tied up capital overhead and maintenance of an aging asset	Freedom to use the asset as you wish and modify according to your business needs

Schedule a meeting

Small business owners often find themselves at the crossroads of a lease vs. buy decision. This quick guide is a starting point for some of the considerations to be made, and you shouldn’t hesitate to discuss the options with your CPA to fully consider all the information and make the best decision for your business.

At Arria CPA, we work with our clients to prepare an objective analysis of their leasing and buying options, taking into account not only their finances, but also the anticipated growth of their business, and relevant industry trends. Contact us for a free, no-obligation consultation to learn more about how we can help your business make the right decision.

---

Disclaimer: Please note that this is only a brief summary and is based on current accounting regulations and tax law interpretations. Accounting regulations and tax laws are subject to continual review and change, so should the facts provided to us be inaccurate or incomplete, or should the law or its interpretation change, our summary may be inappropriate for your uses. This article is written for educational purposes only, and as such, we recommend you consult a professional before making an accounting or tax decision. If you have any concerns, or would like further consultation regarding this matter, please contact us.