Lease Vs Buy

Should I Lease or should I Buy?

All people and businesses face this question at some point in time. In most simple terms think of your mobile phone, essentially you lease this from your phone provider once they have purchased it from say Apple at full price. What they then do is finance the purchase and sell it via a monthly payment to you alongside a call and data plan, this is what we call in business “Value Add”. Often people follow this approach as they do not have the £1000 handy to pay for the new handset, they become used to paying the £59.99 a month and so it’s easier to lease… Most people do not realise that they can save money by purchasing the phone themself or getting a loan to buy the phone and get a pay as you go SIM.

When you approach a decision of Lease Vs Buy, you would look at your cashflow to understand the best course of action. Often lease is a good option as the capital outlay is much less and there are many larger companies who can obtain the finance at a much cheaper rate and then lease the asset to you more cheaply than you may be able to buy it with your own financing. This is a result of modern-day government led financial markets engineering and something to consider overall when putting capital to work. In today’s world, leverage is key to maximising income and profit. Our aim is to offer guidance while you walk along this path and help you manage your risk at each juncture.

When you purchase an asset, it is important to recognise the ongoing service costs and any cost of retiring the asset at the end of its useful life. Assets come in many shapes and forms, in our view assets are merely items that generate a return on investment. We try and train all our clients to think about assets like this. Any assets you hold should be reviewed on a regular basis to ensure they are generating the associated revenue to pay for their costs as this would highlight the time to sell an assets once it stops being revenue generative. For example this can be as simple as buying a new set of chainsaws for your Tree Cutting business as it will increase productivity by 20% as the saw will cut quicker or two people can work at the same time cutting thus reducing overall time to complete a job. Optimisation of workflow using the right assets is key to creating competitive advantage in business.

Technology is an asset. Websites and your systems that support your business are revenue generative as they create faster processing and reduce errors as an example. In today’s world, technology assets are becoming significantly more important. You only need to look at Amazon.co.uk to know this! Every business should be building technology assets to survive into the future, especially post COVID-19. Going forwards technology will be much more important for all businesses as it creates means to engage with clients in ways that make people feel safe and enables them to have less social interaction with others therefore reducing their risk. Having a website that allows for booking and amending bookings would save significant resource time in your Beauty Spa business as an example.

We are more than accountants we are business partners. Thomas has built vast technology with varied 3rd party suppliers in his Travel Company and has great value to bring to the table to create value for your business over the long run. Thomas is not just a CIMA Fellow he is a talented technologist who can develop and challenge IT professionals to deliver when others may get bogged down in complexities. He has the ability code in various languages which helps bridge gaps between ideas, scope, delivery, and rollout. This is key when engaging with external suppliers as they will want to maximise their revenue as well. Thomas is perfectly placed to provide the necessary controls ensuring a good outcome for your company and the supplier.supplier.

Irrespective of your investment it is key to know the future revenue stream from the asset. Using standardised methods to value the asset such as payback, Internal Rate of Return (IRR) and the Net Present Value (NPV) methods will provide guides on the net benefit to the business. When revenue is not clear then we provide alongside the business plan a fan chart of expectations which can then be monitored after the asset has been purchased to validate its ongoing benefit to the business.

If are interested to find out more, please contact our team.