Commercial air conditioning is an essential part of comfortable space. If the business is at a crossroads with upgrading or installing new units, then it’s time to consider the argument of financing vs. paying cash.
Let’s look closely at the pros and cons of financing and cash.
Financing Pros and Cons
When you finance the air conditioning system, you are spreading the cost over a period of time in which you’ll be using it. It also allows you to pay what you are able to through monthly payments that fit the budget. If you wait to purchase this equipment until you can pay cash, you may be waiting a considerable amount of time. With something as necessary as AC, that’s not a good option. Get access to what you need and can afford over time with leasing.
As a depreciable item, you’ll be able to deduct the costs from taxable income, which is certainly a bonus. Consider how this can give you an advantage in offsetting profits. When you lease the product, you may also opt to include maintenance or support costs in the monthly payment. This means that if it malfunctions or breaks occur, you’ll get an immediate response to fix it.
Cash should go toward business growth initiatives like new product development or hiring new employees
Investing cash into a commercial unit doesn’t make sense. Rather, cash should go toward business growth initiatives like new product development or hiring new employees. These efforts are more likely to be profitable so they are more cash-friendly.
When choosing how to lease the equipment, you may find it more beneficial to use an alternative financial provider outside the main banking partner. This way, it won’t infringe upon the current loans or accounts.
With any lease, you are subject to interest rates. Depending on the amount and terms, this could add significant cost. However, you are allowed to use it to offset taxable income. When looking at terms, select a fixed-term agreement. You must also consider how taking on new debt will impact everything else: the monthly budget, long-term savings, future term rates. Too much debt can cause a business to go under.
Cash Pros and Cons
When you buy an asset outright, you have control over it. You’re not relegated to thinking of the equipment as something “borrowed.” You may be able to see some return when the time comes to retire it. It depends on the second-hand market and the condition of the unit. If it doesn’t work any longer then there’s no opportunity to earn something back. Also, keep in mind, if you start by looking for a used product, you have the chance to save up front.
But you can leverage the asset on the balance sheet, using it as security toward any future business loans.
Although there is a small chance of future value, the reality is that commercial air conditioning is an asset that will depreciate in value. It will have little to no worth at the end of its useful life. If you are making such a purchase in cash, that’s a large chunk of money to take from the savings or reserves. You must think about how that could disrupt the operations.
Buy or Lease: It Comes Down to Depreciation
In the words of entrepreneur and billionaire John Paul Getty, “If it appreciates, buy it. If it depreciates, lease it.”
Dixon Group issues a full breakdown of the monthly repayment and total repayment amount Commercial air conditioning is a depreciable asset. It will continue to decline in value every day you own it. In the end, it can’t deliver any financial benefit when sold. For a small business, the conclusion is financing. You may pay more over time but it’s the best for the books.
Martin Dixon Limited is accredited with the FCA and can organize all financial packages to take workload/stress away from our clients allowing them to carry out their day-to-day activities within their organizations. Dixon Group will issue a full breakdown of the monthly repayment, total repayment amount, and the amount you can offset against taxable income allowing clients to make an informative decision.
Dixon Group understands how important cash flow is within an organization and finds finance packages a plus due to an agreed payback amount being agreed which can then be budgeted for throughout the year. Plus, come the end of the term the Air Conditioning System is yours.
