Business assets fall into three broad categories: tangible, intangible, and intellectual property. Assets and equipment depend on the type of asset, you will need to decide whether you want to buy or lease assets for your business. The first step is to identify which assets will help your business succeed.
Also, things like buildings, vehicles and equipment are used in the normal course of business and lose value over time. Things like printer paper that gets used up are usually not counted as assets. When managing your finances, you can count tangible assets on your balance sheet as property or equipment.
Assets and equipment: Intangible assets
Your company’s reputation, brand or business partner’s influential network are intangible assets or things you cannot touch. So, you don’t list them on your balance sheet and it’s often difficult or impossible to sell them for cash. However, they can still add to the overall value of your business.
A type of intangible asset that includes trademarks, patents, logos, websites, domain names, and software. Intellectual property is often protected by copyright or trademark protection.
- Decide whether to rent or buy
- Once you have identified all the assets you need for your business, you can decide how you want to acquire them.
Assets and equipment: Lease
Leasing can be a good option if you need to get a large amount of equipment quickly or if the equipment you need is very expensive. Non-residential spaces can also be rented, so you can rent space to run your business. In some cases, leasing can actually be cheaper than buying with a high-interest loan.
Advantages of leasing:
Needs less cash or credit upfront Short-term rentals allow you to try out the equipment Maintenance is sometimes included at no extra cost Leasing instalments of commercial property are usually tax deductible
Disadvantages of leasing:
Lifetime costs are usually higher than purchase costs Replacing it after the end of the lease could be expensive Depreciation of leased property is usually not tax deductible Each lease can be structured differently, so check the details of your offer to make sure you’re getting something that suits you.
Confirm rental details
There are two general types of leases, operating and capital. Because the accounting treatment is different, the type of lease you use can significantly impact your business taxes.
- It works like a traditional rental company
- So, It does not add to your balance
- Payments are operating costs
- Low maintenance, risk or tax obligations
- Capital lease
- It works more like a loan
- You own property for accounting purposes
- So, Added to your balance sheet
- Debt write-offs and interest expense
- So, assume all maintenance, risk and tax obligations
There are other factors to look at. Leases sometimes have buyback options that allow you to buy the asset outright at the end of the lease. The lease length can vary, and shorter leases usually have higher monthly payments. If you want to leave your lease early, you may face high early termination penalties.
You may want to ask a lawyer to review the lease with you before signing, especially if some of the terms are unclear.
Assets and equipment: Buy
Buying equipment can be a good option if you have enough cash or credit available and you are sure you will be using the property for a long time.
Advantages of purchase:
- You can claim tax credits
- The lifetime cost of buying is usually lower than the cost of leasing
- You can count it as an asset on your balance sheet
Cons of buying:
Needs more cash or credit upfront Fewer opportunities to “test” assets. You can be fully responsible for maintenance and replacement
Buy with cash or credit
If you buy your assets with cash, you will immediately own them in full. But it also means you’ll have less money available to cover operating costs. Make sure you’ve done your accounting homework and that you can actually afford to pay cash.
Loans can give you some of the same benefits as leasing by spreading the total cost over a longer period. However, you will pay more in fees and interest than if you buy directly with cash.
You may be able to use lines of credit with your bank or look for other sources to get more funding for your business.
Assets and equipment: buying government surplus
Buying surplus goods from the government can be easy and affordable. Almost any tangible asset your business may need, the government will sell at or below what you would pay on the open market.
If a federal or state agency has special equipment, seized goods, or seized property, the goods are either transferred to another government agency or sold to the public. These items are sold “as is” by auction or negotiated sale either online, in person or both. State governments tend to have one online auction site, while the federal government has several. Also, many more blogs are there on investments here. Source SBA.