There are plenty of businesses that don’t find it necessary to outright buy all of the assets that they use to keep operations going. Depending on the circumstances, leasing can be more cost-effective. However, if you’re leasing any asset, you need to make sure that you treat it like a lease and take the time to manage it differently from the resources and equipment that you own. Here are a few tips on how to do that.
Be sure of which type of lease you want
There are two types of leases that you should keep in mind when you’re looking to lease new equipment, assets, or property. With an operating lease, you use the asset for a set period of type, and the asset is treated as a service rather than an asset or liability. With a capital lease, you still do not own the asset that you are leasing, but it is treated as an asset, meaning you are liable for it and it is counted as a holding. This is mainly used for larger companies and can help claim you claim depreciation costs in taxes, but also comes with considerably more risk.
Know when it crosses that cost-effectiveness line
When you’re talking about the overall cost-effectiveness of an asset, you need to measure its efficiency against how it much it costs you. If it ever costs more than it helps you earn, then it’s no longer worth keeping in the current deal that you are getting. However, you should also consider the total cost of ownership that you might have to pay if you buy it outright. Consider how long it would take you to reach that amount if you are leasing it and whether or not you should switch to purchasing it before you reach that point.
Staying compliant with it
There are legal responsibilities that your business has if you are leasing any assets, as well. In particular, when you are doing your accounting and book-keeping, you need to make sure that you’re able to keep track of any leases separately from the assets that you own, especially under code ASC 842. There are specific leasing accounting software packages that can help you track and stay compliant with any regulations that apply, making it easier to keep it all above board as you go.
Ensuring you don’t get stung by fees
When you take on any leased assets, you have to know what you’re going to be paying for. Extra costs can come as a result of any necessary repairs or maintenances. There may also be additional fees that can accumulate due to documentation, late payments, and other issues. You should always be aware of whether or not you have to pay for any insurance for your leased assets, which might be paid directly to the leasing company.
Leased assets can be of major benefit to your business, but they will require a little extra work. The tips above can hopefully help you understand how to best manage them.
