Why is leasing better than paying cash or taking a loan?
Some financial analysts feel your company’s money should earn you 30% annually. This takes into consideration how that money could be spent on marketing, expanding your business, et al.
If we use that 30% as a rule of thumb, we have a starting point for our example as to why leasing is the best alternative.
Purchase
For this example, let’s figure on your company paying cash for a $25,000 piece of equipment:
$25,000 (company money) x 30% (rate it should earn) =
$7,500 (income/year that $25,000 should earn you)
Taken over a 5-year period:
$7,500 x 5 =
$37,500 (the amount your company should have made off of that initial $25,000)
$37,500 (money lost by purchasing) + $25,000 (cost of equipment up front) =
$62,500.00 (out of pocket expense for a $25,000 purchase)
Lease
Leasing requires (2) payments up front (tax deductible) and you get the equipment after your first payment.
$25,000 (equipment cost)
$612.50 (monthly payment) x 35% (tax bracket) =
$214.38 (deductible taxes on each payment)
$612.50 (monthly payment) - $214.38 =
$398.12 (true out-of-pocket expense/month)
$398.12 x 60 (payments) =
$23,887.20 (total cost you wind up paying on equipment) |